15. One piece of federal legislation instituted the takeover(i.e., liquidation o

Question

15. One piece of federal legislation instituted the takeover(i.e., liquidation or shutting the institution down) by the FDIC of banks and S&L with low net worth (capital). The institution that were targeted were not yet insolvent (i.e., they still had positive capital) but the level of capital was low). In addition, this legislation created a system of capital zone for banks based on their risk-weighted assets. Banks with high capital were to have less scrutiny from regulators. The process described was implemented in the:

a) FDIC Improvement Act of 1991

b) Financial Service Modemization Act of 1999

c) Garn-St. Germain Act of 1982.

d) DIDMCA Act of 1980

Explanation / Answer

Congress enacted FDICIA in 1991 to implement policies that would ensure the safety and soundness of both the banking and thrift industries.Some sections of FDICIA include limitations on the ability of undercapitalized and critically undercapitalized institutions to borrow from the Fed

Hence the correct option is a) FDIC Improvement act

b is wrong as it enabled companies working in the financial sector to integrate their operations and invest in each others businesses and consoldiate.

c is wrong because it deregulated savings and loan associations and allowed banks to provide adjustable-rate mortgage loans

d is wrong because it provided Federal Reserve greater control over non-member banks rather than commercial financial institutions

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