Chapter Questions
How does the concept of asymmetric information help to define a financial crisis?
How can the bursting of an asset-price bubble in the stock market help trigger a financial crisis?
What impact do declining price levels have on lending by financial institutions?
How can a decline in real estate prices cause deleveraging and a decline in lending?
How does a deterioration in balance sheets of financial institutions and the simultaneous failures of these institutions cause a decline in economic activity?
How does a general increase in uncertainty as a result of the failure of a major financial institution lead to an increase in adverse selection and moral hazard problems?
What is a credit spread? Why do credit spreads rise significantly during a financial crisis?
What causes bank panics to occur?
Why do bank panics worsen asymmetric information problems in credit markets?
How can financial innovation lead to financial crises?
What role does weak financial regulation and supervision play in causing financial crises?
The Great Depression of 1930 and the financial crises of $2007-2009$ have some similarities and some differences. Compare and contrast the two economic crises.
What do you think prevented the financial crisis of $2007-2009$ from becoming a depression?
What technological innovations led to the development of the subprime mortgage market?
Why is the originate-to-distribute business model subject to the principal-agent problem?
"Financial engineering always leads to a more efficient financial system." Is this statement true, false, or uncertain?
How did a decline in housing prices help trigger the subprime financial crisis that began in 2007 ?
What role did the shadow banking system play in the $2007-2009$ financial crisis?
Why would haircuts on collateral increase sharply during a financial crisis? How would this lead to fire sales on assets?
How did the global financial crisis promote a sovereign debt crisis in Europe?
What were the various measures taken by different European countries to tackle the financial crisis of $2007-2009 ?$
Why would macroprudential regulations not be sufficient enough to handle systemic discrepancies in an economy?
What are the challenges a Central Bank would face when handling a financial crisis and how would they react to them?
What recommendations have been made in Basel 3 to mitigate different risks faced by banks during a financial crisis?
How can collective and coordinated efforts by governments across the globe prevent future financial crises?