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Moral Hazard and the Credit Crisis Explain why the moral hazard problem received

Moral Hazard and the Credit Crisis Explain why the moral hazard problem received so much attention during the credit crisis. 4) FDIC Insurance What led to the establishment of FDIC insurance? 5) Glass-Steagall Act Briefly describe the Glass- Steagall Act. Then explain how the related regulations have changed. 16) Financial Services Modernization Act Describe the Financial Services Modernization Act of 1999. Explain how it affected commercial bank opera- tions and changed the competitive landscape among financial institutions. 19) Capital Requirements during the Credit Crisis Explain how the accounting method applied to mortgage-backed securities made it more difficult for banks to satisfy capital requirements during the credit crisis. ******************************************************************* 2) Liquidity Given the liquidity advantage of holding Treasury bills, why do banks hold only a relatively small portion of their assets as T-bills? 15) Bank Loan Diversification In what two ways should a bank diversify its loans? Why? Is international diversification of loans a viable strategy for dealing with credit risk? Defend your answer. 1) Net Interest Margin Suppose a bank earns $201 million in interest revenue but pays $156 million in interest expense. It also has $800 million in earning assets. What is its net interest margin? 2) Calculating Return on Assets If a bank earns $169 million net profit after tax and has $17 billion invested in assets, what is its return on assets? 3) Calculating Return on Equity If a bank earns $75 million net profits after tax and has $7.5 billion invested in assets and $600 million equity investment, what is its return on equity?

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