1) The policy of ________ exacerbated ________ problems as savings and loans took on increasingly huge levels of risk on the slim chance of returning to solvency.
A) regulatory forbearance; moral hazard
B) regulatory forbearance; adverse hazard
C) regulatory agnosticism; moral hazard
D) regulatory agnosticism; adverse hazard
2) Regulatory forbearance
A) meant delaying the closing of “zombie S&Ls” as their losses mounted during the 1980s.
B) had the advantage of benefiting healthy S&Ls at the expense of “zombie S&Ls”, as insolvent institutions lost deposits to health institutions.
C) had the advantage of permitting many insolvent S&Ls the opportunity to return to profitability, saving the FSLIC billions of dollars.
D) increased adverse selection dramatically.
3) The major provisions of the Competitive Equality Banking Act of 1987 include
A) expanding the responsibilities of the FDIC, which is now the sole administrator of the federal deposit insurance system.
B) the establishment of the Resolution Trust Corporation to manage and resolve insolvent thrifts placed in conservatorship or receivership.
C) directing the Federal Home Loan Bank Board to continue to pursue regulatory forbearance.
D) prompt corrective action when a bank gets in trouble.
4) The S&L Crisis can be analyzed as a principal agent problem. The agents in this case, the ________, did not have the same incentive to minimize cost to the economy as the principals, the ________.
A) politicians/regulators; taxpayers
B) taxpayers; politician/regulators
C) taxpayers; bank managers
D) bank managers; politicians/regulators