The financial sector and crises - Bank behavior, cycles and crises - Bank behavior and the macro-economy
9 important questions on The financial sector and crises - Bank behavior, cycles and crises - Bank behavior and the macro-economy
Explain why banks are a special case for policymakers
2. Problems in one bank spill over to fears about the functioning of the banking system as a whole (contagion).
Why is the bankruptcy of a bank a problem for public policy in a way that is not for a company in another industry?
Describe the trade-off for policymakers when a bank is bankrupt
On the other hand, the need to avoid moral hazard.
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Describe an important market failure in bank behavior
How could a policymaker mitigate the market failure in bank behavior?
What are the activities of banks?
2. Engagement in the creation and trading of financial assets and of contracts based on assets (derivatives)
Definition of a retail bank
Definition of a universal bank
Definition of the shadow banking system
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