1.

A. In 2007-2008 Goldman Sachs was converted to a holdings bank (HBC). Goldman made the
conversion from an investment bank in order to gain access to federal reserve discount
window borrowings so that they could stay in business. This conversion was made over one
weekend according to the text.
B. Bear Stearns was acquired by JPMorgan Chase because they were invested too heavily in
MBSs.
C. Morgan Stanley survived the 2007-2009 crisis. It was another investment bank that
converted itself to a bank holding company in order to gain access to the federal reserves
discount Window.
D. Lehman Brothers completely failed in the 2007-2009 crisis. Barclays ended up buying their
brokerage account.
E. Merrill Lynch was acquired by Bank Of America.
2.
A. Securitization is when you pool together a large amount of a debt(mortages) and issue a
security that uses the asset behind the debt as collateral(homes).
B. Subprime loans are loans that are very risky. They are risky because the people they are
being lent to are not good borrowers, or the background of the borrower was not thoroughly
checked.
C. asset write downs are when the asset value is lowered on the balance sheet, this causes
huge losses in capital.
3. One bank holding companies only have stock/ownership of a single bank while, MBHC has
stock/ ownership in multiple banks. These both differ from a financial service holding company
because FHCs can engage in underwriting securities and insurance as well as merchant
banking and insurance company investment portfolio activities.
4. S corp banks differ in their tax treatment in that they do not pay corporate income tax. S corp
banks also do not pay federal income tax. Each shareholder is taxed at their appropriate
personal tax level based on how much income they receive from their ownership.
5. Transaction banking is where a bank is solely focused on making more transactions with little
to no human involvement to earn a higher profit. Relationship banking is when a banker at a
possibly smaller bank gets to known the customer and really helps them with a wide variety of
products or services. Relationship banking involves a lot more human involvement. Many
smaller banks engage in relationship banking as it is a god way to get to know the clients and
communities and grow their bank. While as banks get larger they look to become more
transaction based so that they can offer a large amount of standard products over a huge
geographical area.
Chapter two.
3.Thebasicobjectivesofdepositoryinstitutionregulationistomakeamorestablemonetarysystemanddeposit
institution,toprotectthecustomer,toprovidemonetarystability,andtohaveacompetitiveandeffectivefinancial
structurethatoffersrelativelycheapfundstobeloanedtoindividualsandbusiness.Regulatorsdothisbylimitingthe
exitingandenteringofownershipinabank,limitingthenumberofdepositsanyoneinstitutioncancontrolinanarea,
forcinglenderstodiscloseborrowingandsavingsrates,andbycreatingtheFDIC,OCC,NCAUandtheSECtomonitor
andcontinuallyregulatethebankingindustry.

6.Theacronymcamelsreferstocapitaladequacy,assetquality,managementquality,earningsquality,liquidity,and
sensitivitytomarketrisk.Inotherwordsitreferstotheoverallqualityandstabilityofacommercialbank.Themost
importantfacetsofaCAMELSexamisassetquality,Managementqualityandrisk.
11.Thebasicargumentforincreasingcapitalrequirementsisthatitmakesitharderforabanktofailiftheyhavemore
equity/capital.Depositors,stockholdersandsocietyingeneralwouldbenefitfromincreasedcapitalrequirements
becausethenumberofbanksolvencieswoulddecreaseandtherewouldbemuchmoretrustinthefinancialsystem
whichinturncreatesastrongereconomy.Everydaypeoplemightbeatadisadvantagebecausetheywouldhavelessofa
choiceofwheretobank.Andstockholderswouldbedisadvantagedinasimilarwayastheywouldhavelessofachoice
ofbankstoinvestin.Asacommercialbankentersanewlineofbusinesssuchasbrokeragetheyshouldcarryenough
capitaltooutweightheadditionalrisktheyaretakingon.OnlycertainlinesofbusinesscanbeinsuredbytheFDIC,if
thenewlineofbusinessisrelatedtoconsumerdepositsthanIbelieveitshouldhavetobeinsuredbytheFDICto
maintainfaithinthefinancialsystem.
13.Themainreasonsomefirmsaretoobigtofailisthatiftheydidfailitwouldcreateabeliefinthepublicthatthe
financialsystemisnotsafe.ItisnotpossibleforcongresstosimplyoutlawTBTFinstitutionsforavarietyofreasons
including,youcannotsimplyjustliquidatea1trilliondollarcompany,itismuchcheapertorunalargebankthana
smallbankeconomiesofscaleandthefailingofaTBTFbankwouldcreateadominoeffectthroughouttheindustry.
Asthebookexplains,wecannotsimplyletbanksfailwehavetocreateasystemthateffectivelymanagestheriskthat
largebankstake.

Thenationalbankactof1864createdasystemfornationalbanks,broughtthefederalgovernmentintosupervisionof
banksandestablishedtheofficeofthecomptrollerofcurrency.
Thefederalreserveactof1913wasanactofcongressthatcreatedthefederalreserveandallowedittoissuefederal
reservenotes.AKAtheU.S.dollar.Thiscreatedamorestableandsafeeconomyandmonetarysystem.
Bankingactsof193335establishFDICinsuranceonconsumerdeposits,separatedcommercialdepositbankingfrom
investmentbanking,definedthegeographicareaasinglebankcouldoperatein,andnarrowedtheproductsthatabank
couldoffer.
DIDMCAremovedinterestedrateceilingsandallowedbankstoofferinterestoncheckingthroughnegotiableordersof
withdraw.
FIRREAputtheFDICinchargeofbankingInsuranceandcreatedtwoseparatefundscalledBIFandSAIFtoonceagain
restoreconfidenceinthefinancialsystem.
RiegleNieleallowedbanksthathadadequatecapitalandstructuretoreachofthestatesthattheywereheadquarteredin
andexpandtheirservicesgeographically.
Grahamleachblileyrepealedtheglassstiegelactandallowedfinancialinstitutionstoactasadepositinvestment
insurancebank.
DoddFrankact CreatedtheFinancialStabilityOversightCouncil,CreatedtheOfficeofFinancialResearchwithinthe
TreasurytosupporttheCouncil,CreatedanindependentBureauofConsumerFinancialProtectionwithinFederal
Reserve,CreatedtheOfficeofNationalInsurancewithintheTreasury,CreatedtheOfficeofCreditRatingAgencies
withintheSEC,theDoddFrankactchangedahugeamountofthingsinthefinancialindustry,itrequirestighter
regulation,bettermorespecificreportingbyfinancialinstitutions,andahugeamountofsupervisionbymanydifferent
Federalagencies.