Why are U.S. banks prohibited from owning stocks?
What will be an ideal response?
It probably has a lot to do with two main issues. One is the liquidity of these securities. The markets for these securities at times can be less liquid than say for U.S. treasury securities, and that can have an adverse impact on a bank that needs to get liquidity. Another issue can stem from fluctuating market values for these securities. As their market values fluctuates so will the value of the banks' assets. Especially in those instances when market values may drop significantly (stock market crashes, etc.), banks may find that the value of their assets falls so much their net worth disappears and they may become insolvent. Compounding this will be the potential runs on banks if it is rumored that a particular bank owned a lot of stock of a company that is failing.
You might also like to view...
The above figure shows the payoff matrix for two firms, A and B, choosing to produce a basic computer or an advanced computer. The dominant strategy for firm A is
A) producing an advanced computer. B) producing a basic computer. C) copying firm B's action. D) Firm A does not have a dominant strategy.
If a firm produces 8 units of output with average fixed cost=$40 and average variable cost=$25, what is its total cost?
a. $200 b. $1,000 c. $520 d. $320
Which of the following is false?
a. The most well known price index is the consumer price index, which provides a measure of the trend in the prices of goods and services purchased for consumption purposes. b. The GDP deflator measures the average level of prices of all final goods and services produced in the economy. c. The CPI is the price index that is most relevant to households trying to evaluate their changing financial position over time. d. A price index is equal to the cost of the chosen market basket in the base year, divided by the cost of the same market basket in the current year, times 100.
The welfare rolls today are
A. much higher than they were in 1994. B. A little higher than they were in 1994. C. a little lower than they were in 1994. D. much lower than they were in 1994.