Question

1) The U.S. banking system experienced the Savings and Loan crisis in the 1980s, where key savings and loan associations (S&Ls) collapsed. Those S&Ls were tied to politicians with close relationships to S&L managers. The following questions examine this crisis.

Which of the following contributed to the S&L crisis in the 1980s?

A) the Great Inflation    B)the Great Inflation       C) risky lending by S&Ls D) all of the above

2)The U.S. banking system experienced the Savings and Loan crisis in the 1980s, where key savings and loan associations (S&Ls) collapsed. Those S&Ls were tied to politicians with close relationships to S&L managers. The following questions examine this crisis.

True or False: Regulatory forbearance reduced the principal-agent problem associated with the S&L crisis in the 1980s.

3) Which of the following bank legislations separated banking from the securities industry?

A) The Glass-Steagall Act   B) The Gramm-Leach-Bliley Financial Services Modernization Act   C) The McFadden Act

D) The Riegle-Neal Interstate Banking and Branching Efficiency Act

Answer 1

1.

C) Risky lending by S&Ls

It was the risky lending practices that led to the failure and bankruptcy of the most of the saving and lending institutions. It led to the crisis

2.

False

The regulatory forbearance or leniency led to the increase in agency conflict, a reason or the failure of such institutions.

3.

A) The Glass-Steagall Act

The act separated the investment baking and the commercial banking from each other. As a result, the risk quotient of the banking system came down with increased level of the transparency.