Related to the Making the Connection) In 2016, financial regulators ordered sign
ID: 361065 • Letter: R
Question
Related to the Making the Connection) In 2016, financial regulators ordered significant changes in the "Tiving wills" prepared by five large banks According to an article in the Wall Street Journal, the wills as submitted didn' "meet the legal standard laid out in he 2010 Dodd-Frank law, which requires that firms have credible plans to go through bankruptcy at no cost to taxpayers Source Ryan Tracy,"Regulators Reject 'Living Wills of Five Big U.S Banks,"Wall Street Journal, April 13,2016 Why did Congress with the Dodd-Frank Act decide to require large financial firms to have living wills? O A. to plan how large losses would be covered by the government. O B. to plan how large losses would be covered by FDIC O C. to ensure that banks were too big to fail D. to give regulatorsa clearer understanding of a bank's operations What changes were made to Section 13(3) of the Federal Reserve Act? A. The Fed was permited to make loans to specific corporations. O B. The government was permitted to make loans to specific corporations O C. The Fed was no longer permilted to make loans to indvidual companies were no longer allowed D-The Fed was permited to make loans designed to prevent individual companies from avoiding bankupcy Type here to searchExplanation / Answer
1) As a response to the financial crisis that has occurred in 2008, the Obama administration has passed a financial reform legislation in 2010 namely – The Dodd-Frank Wall Street Reform and Consumer Protection Act. The Act created the Financial Stability Oversight Council (FSOC) to address tenacious issues affecting the financial industry and also safeguards consumers from many of the abuses that contributed to such recession. One of the Act’s measures in this regard was the creation of a new tool—known as resolution plans, or “living wills”—aimed at giving regulators an enhanced understanding of, and increased authority over, the largest and most complex financial institutions. In particular, living wills and their associated regulatory provisions are intended to make these institutions, known as systemically important financial institutions (SIFIs), resolvable without public support if they become financially distressed.
This clearly explains that the living wills are required to give regulators a better understanding about the operations of super-power banks or financial institutions without help of public i.e., neither government nor FDIC. The correct choice is (D).
2) As it is a well-known fact that not all primary dealers are depository institutions, the Fed, to provide credit assistance to these primary dealers, had to invoke authority under Section 13(3) of the 1932 Federal Reserve Act, as amended by the Banking Act of 1935 and the FDIC Improvement Act of 1991, which permits the Fed to lend to any individual, partnership, or corporation “in unusual and exigent circumstances if the borrower is “unable to secure adequate credit accommodations from other banking institutions.” The correct choice for your question is (A)
Section 13(3) was enacted in 1932 out of concern that widespread bank failures would make it impossible for many firms to obtain loans, thus depressing the economy. In the four years after the Section was added, the Fed made a total of 123 loans totaling just $1.5 million.
Surprisingly, Section 13 (3) was not used again until 2008, 76 years later.