1) One of the criticisms of Basel 2 is that it is procyclical. That means that
A) banks may be required to hold more capital during times when capital is short.
B) banks may become professional at a cyclical response to economic conditions.
C) banks may be required to hold less capital during times when capital is short.
D) banks will not be required to hold capital during an expansion.
2) Overseeing who operates banks and how they are operated is called ________.
A) prudential supervision
B) hazard insurance
C) regulatory interference
D) loan loss reserves
3) The chartering process is especially designed to deal with the ________ problem, and regular bank examinations help to reduce the ________ problem.
A) adverse selection; adverse selection
B) adverse selection; moral hazard
C) moral hazard; adverse selection
D) moral hazard; moral hazard
4) The chartering process is similar to ________ potential borrowers and the restriction of risk assets by regulators is similar to ________ in private financial markets.
A) screening; restrictive covenants
B) screening; branching restrictions
C) identifying; branching restrictions
D) identifying; credit rationing