Economics of financial intermediation august 2015.
1) We have seen structural, behavioral and performance indicators. a. What indicators have we seen? Name them.
b. Is the use of these preferred over others?
c. What makes us of these less or more complex in financial markets, as opposed to the industrial market?
d. Finantropia has 4 banks. Banks are heavily regulated, no interbank lending allowed. Finantropia Central Bank lending is allowed at 18%. For deposits no fiduciair premium is allowed. Deposit rate is set by FAA, the Finantropia authority. At t0 deposit rates are 1,75% and loan rates are 5%. Now FAA sets the deposit rates at t1 at 2,75%. The FAA now sees how loan rates go up to 5,5% as well. Use indicators from 1) a to draw conclusion on competition in market.
2) Forensic economics uses certain tools to detect wether financial institutions collude: a. Do you know these tools?
b. Spread for IBM shares increases suddenly by large amount. Could the Securities and Exchange Commission (SEC) do something with this fact? 3) Finantropia has 4 banks at 0 (bank A), 120 (bank B), 180 ( C) and 270 (D) degrees,
each are equally wide distanced from each other.
a. D wants to acquire B. Does the Finantropia AA think this is ok? b. Does the Finantropia CB think this is ok?
c. The deal fails, and now D wants to buy A. Does the opinion of FAA and FCB change or not?
4) Government of Finantropia now deregulates deposits. Every bank give the deposit rate it wants to its depositors. Now the government fears a bank run, so extra guarantees are given to just the 2 largest banks. The 2 smaller banks in the country are left out.
a. Explain the competitive dynamics, will the deposit rate of the 2 smaller banks change?
b. How can the government prevent banks from misusing aid for more market power or market share?
