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16 Nov 2015, 22:05
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A
Be sure to select an answer first to save it in the Error Log before revealing the correct answer (OA)!
Difficulty:
75%
(hard)
Question Stats:
59% (02:36) correct
41%
(02:39)
wrong
based on 437
sessions
History
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Not Attempted Yet
The Dodd-Frank Act’s mandate that the Board of Governors of the Federal Reserve System adopt enhanced capital standards to mitigate the risk posed to financial stability by certain large financial institutions provides the principal statutory impetus for enhanced capital requirements for systemically important financial institutions ("SIFIs"). Because the failure of a SIFI could undermine financial stability and thus cause far greater negative externalities than could the failure of a financial institution that is not systemically important, a probability of default that would be acceptable for a non-systemic firm may be unacceptably high for a SIFI.
The Dodd-Frank Act's mandate is based on the assumptions that
(A) Reducing the probability that a SIFI will default reduces the risk to financial stability
(B) A financial institution that is not systemically important has a far greater probability of default than a SIFI
(C) The default of a Non-SIFI institution causes far greater negative externalities than the failure of a SIFI
(D) The high probability of default of SIFIs is the only reason for the enhanced capital requirements
(E) Negative externalities cause SIFIs to default
The Dodd-Frank Act's mandate is based on the assumptions that
(A) Reducing the probability that a SIFI will default reduces the risk to financial stability
(B) A financial institution that is not systemically important has a far greater probability of default than a SIFI
(C) The default of a Non-SIFI institution causes far greater negative externalities than the failure of a SIFI
(D) The high probability of default of SIFIs is the only reason for the enhanced capital requirements
(E) Negative externalities cause SIFIs to default
09 May 2016, 11:37
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Marchewski
The Dodd-Frank Act’s
Federal Reserve adopt capital standards to mitigate risk posed by large financial institutions
Large financial institutions ---->Risk-----> Federal Reserve
Large financial institutions ---->Risk---->|Protects|----> Federal Reserve
Marchewski
Statutory reasons for enhanced CAP requirements for SIFI
Marchewski
Failure of a SIFI > Failure of a non SIFI { Negative externalities due to failure }
Marchewski
Probability of default for a non-systemic firm > Probability of default for a Systemic firm
Does it make sense now ??
16 May 2016, 03:39
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Marchewski
Here in the stimulus it is stated that failure of a SIFI could undermine financial stability and thus cause far greater negative externalities than could the failure of a financial institution that is not systemically important, thus cause far greater negative externalities than could the failure of a financial institution that is not systemically important,
from this statement it is clear that risk of financial stability reduces as the probability of default of SIFI redduces.
hence A
