Key Questions and Issues
for In-Class Discussion
and for Exam Review

Economics 353
Money, Banking, and Financial Institutions

Last Updated: 7 November 2007

Latest Course Offering: Fall 2007

Course Instructor:

Professor Leigh Tesfatsion

tesfatsi AT iastate.edu

Online Econ 353 Syllabus:

http://www.econ.iastate.edu/classes/econ353/tesfatsion/syl353.htm

Mishkin Chapter 1 ("Why Study Money, Banking, and Financial Markets?")

Key In-Class Discussion Questions (M1):

• (Mishkin Chapter 1) Why study money money, banking, and financial markets -- what's in it for you?
• (Web Browse Question) What are some of the key events in U.S. history thought to be important for the development of the U.S. financial sector?
• (Mishkin Chapter 1) How has the U.S. economy performed since 1950, as measured by key macro variables such as GDP, inflation, and unemployment? What's the current situation?
• (Web Browse Question) Why have stock prices exhibited so much volatility since 1950 (and what does "volatility" mean)?
• (Web Browse Question) What's the latest scoop on the "Dot.Com" bubble? Have stocks recovered?
• (Web Browse Question) Have technological changes introduced into the U.S. economy since 1950 been evolutionary or revolutionary?
• (Web Browse Question) What's currently going on with the major trading partners of the the U.S? For example, what's going on in the European Union? in Japan? in Argentina? in Canada? in China? in India?

Key Issues (M1):

• Effects of money, banking, and financial markets on everyday life and on the longer-run well being of nations
• U.S. historical events affecting development of financial sector
• Properties of key U.S. economy time series since 1950
  • U.S. Real GDP Since 1950 (In-Class Slide, from Economagic.com)
  • U.S. Aggregate Price Level Since 1950 (M-Fig 5)
  • U.S. Inflation Rate Since 1950 (In-Class Slide, from Economagic.com)
  • U.S. Interest Rates Since 1950 (M-Fig 1)
  • U.S. Unemployment Rate Since 1950 (In-Class Slide, from Economagic.com)
  • U.S. Employment Since 1950 (In-Class Slide, from Economagic.com)
  • U.S. Stock Prices Since 1950 (M-Fig 2)
  • U.S. Government Budget (Deficit or Surplus) Since 1950 (M-Fig 8)
  • U.S. Dollar Exchange Rate Since 1970 (M-Fig 3)
• Relationship in the U.S. Between Money Growth and the Business Cycle (M-Fig 4)
• Relationship in the U.S. Between Money Growth and the Aggregate Price Level (M-Fig 5)
• Relationship in the U.S. and Other Countries Between the Average Inflation Rate and Money Growth (M-Fig 6)
• Relationship in the U.S. Between Money Growth and Long-Run Interest Rates (M-Fig 7)

Mishkin Chapter 2 ("Overview of the Financial System"): Part A

Key In-Class Discussion Questions (M2-A):

• What's an "asset"? What's a "real asset"? What's a "financial asset"?
• Why are financial assets important to an economy? What role do they play?
• In what ways, if any, are financial firms (firms that transact in financial assets) special in comparison to firms that transact in real assets?
• How are unit prices of real assets determined? For example, how is the unit price determined for a whopper hamburger at the Ames Burger King restaurant? for sweet corn at the North Grand Mall farmer's market? for a car at Toyota-Mazda of Ames? for a home listed for sale by the Ames Hunziker real estate agency?
• Do financial assets require different kinds of pricing mechanisms than real assets? Would you be surprised to see a HyVee stock share store? A New York Shoe Exchange listed in the Wall Street Journal? Why or why not?
• Can you buy financial assets locally in Ames? If so, what type, and from whom?
• How is a stock broker not like a bank? How is a Nasdaq stock dealer not like a stock broker? More generally, what are the general defining characteristics that distinguish brokers, dealers, investment bankers, and financial intermediaries from each other? How does each type of agent make its profits? Have you ever dealt with these kinds of agents?
• What (if anything) do financial intermediaries such as banks do for an economy that brokers and dealers can't do (or can't do as well)? What (if anything) do brokers and dealers do for an economy that financial intermediaries can't do (or can't do as well)?
• What are the key defining characteristics of auction markets, over-the-counter markets, organized exchanges, and intermediation financial markets? Which, if any, of these types of markets have you participated in?
• (Web Browse Question) Will traditional financial players and markets ultimately be replaced by automated financial Internet markets (e.g., Electronic Communication Networks) in which computational agents ("pricebots" and "shopbots") are used by would-be sellers and buyers of financial assets to determine the "best" possible matching orders?
• (Web Browse Question) What are the most common forms of student loans? What are the eligibility requirements? Payment enforcement mechanisms? Default rates?

Key Issues (M2-A):

• The Economy as a Circular Flow (Hand-Out)
• Financial versus Real Assets
• Basic Functions of Financial Markets
• Types of Players in Financial Markets
• Types of Financial Market Structures
• Relative Advantages/Disadvantages of FIs

Mishkin Chapter 2 ("Overview of the Financial System"): Part B

Key In-Class Discussion Questions (M2-B):

• What't the difference between "financial exchange" and instances of "finance"?
• What's the distinction between "direct finance" and "indirect finance" all about? Why might it be important to an economy to have both types of finance?
• What's the difference between a primary market and a secondary market? What are some concrete examples of each? Have you participated in these types of markets? Which ones?
• What are the key distinctions between "debt" and "equity"? If a firm goes bankrupt, would you rather be a holder of the firm's debt or a holder of the firm's equity (stock shares)?
• What's the difference between common stock and preferred stock? If a firm goes bankrupt, would you rather be a holder of the firm's preferred stock or a holder of the firm's common stock?
• What's the difference between a "money market" and a "capital market"? Which type of market do you think would be a better place to store savings in today's economy?
• How are financial markets becoming increasingly global in nature?
• Who regulates financial markets? And why?
• (Web Browse Question) What's the real story about the U.S. "Free Banking Era" (1837-1863)? What does "free banking" mean? Does this historical period provide support for federal regulation of banking?

Key Issues (M2-B):

• Six Basic Functions of Financial Markets
• Distinctions Among Securities Markets by Asset Characteristics
• Asymmetric Information Problems in Financial Markets
• Financial Regulation

Mishkin Chapter 3 ("What is Money?")

Key In-Class Discussion Questions (M3):

• What is "money"? If you were to travel to a newly discovered civilization deep in the Amazon jungle, how could you tell whether or not the people had an economy based on money?
• What does money do for an economy? Do we really need a monetary payment system? What would be so bad about simply having a barter payment system (goods for goods)?
• (Web Browse Question) What kinds of money were in use in the thirteen colonies at the time of the American Revolution? How did Britain finance its war efforts? How did the colonies finance their war efforts?
• (Web Browse Question) What kinds of money were in use in the United States at the time of the outbreak of the U.S. Civil War? How did the north finance its war efforts? How did the south finance its war efforts?
• What kinds of money are in use in the U.S. today?
• What kinds of money do you think might be in use in the U.S. in the year 2050?
• What is "monetary policy"? Why do U.S. monetary policy makers worry about being able to accurately measure and control the money supply?
• How is the money supply actually measured in the U.S.?
• (Web Browse Question) What new forms of financial assets have been developed in the U.S. over the past twenty years? Have these new forms made the measurement of money easier or more difficult?

Key Issues (M3):

• The Definition (Abstract Meaning) of Money
• Types of Money
• Functions of Money
• Evolution of Payment Systems
• Efficiency of Barter vs. Monetary Payment Systems
• Difficulties Encountered in Attempts to Measure the Money Supply
• Measuring the Money Supply: Actual Practice in the U.S.
• Reliability of U.S. Monetary Data

Mishkin Chapter 4 ("Understanding Interest Rates"): Part A

Key In-Class Discussion Questions (M4-A):

• Have you ever taken out a loan? What type? Under what conditions?
• What are "simple loans"? "fixed payment loans"? "coupon bonds"? "discount bonds" (or "zero-coupon bonds") ? What are some every-day examples of these financial assets? Have you ever transacted in these kinds of financial assets?
• Isn't a dollar just a dollar, regardless of when earned? Why can't I simply calculate my expected wealth by adding up the income I expect to earn over the coming years?
• Why is "present value" considered to be one of the most important concepts ever articulated in financial economics? What would finance be like without this concept?
• As a practical matter, how do you calculate the present value of a single future payment? two future payments received on separate dates? an arbitrary future payment stream?
• Why is the "yield to maturity" considered to be the most accurate interest rate measure for financial assets? What kind of information about a financial asset does it convey?
• How do you calculate the yield to maturity for a simple loan? a fixed payment loan? a coupon bond? a discount bond? an arbitrary financial asset? How is it that a discount bond, which makes NO coupon payments by definition, nevertheless generally has a POSITIVE yield to maturity?
• What's a simple trick for remembering the important relationship between the purchase price of coupon bond, its face value, its coupon rate, and its yield to maturity?
• Why is it true that, all else equal, a higher yield to maturity for a bond corresponds to a lower purchase price for the bond?

Key Issues (M4-A):

• Diagrammatic representation of a simple loan contract
• Diagrammatic representation of a fixed-payment loan contract
• Diagrammatic representation of a coupon bond
• Diagrammatic representation of a discount bond
• Present value of a future payment
• Present value of a stream of future payments
• General formula for determining the yield to maturity for any bond
• Calculating the yield to maturity for a simple loan
• Calculating the yield to maturity for a fixed-payment loan
• Calculating the yield to maturity for a coupon bond
• Calculating the yield to maturity for a discount bond
• Inverse relationship between the price of a bond and its yield to maturity
• Relationships among the purchase price, face value, yield to maturity, and coupon rate for a coupon bond.

Mishkin Chapter 4 ("Understanding Interest Rates"): Part B

Key In-Class Discussion Questions (M4-B):

• Why should we care about other measures of interest rates, such as the current yield and the discount yield?
• How can we make sense out of the bond pages appearing in financial sections of newspapers such as the Wall Street Journal and the New York Times? How do these bond pages make use of the current yield, the discount yield, and other concepts and relationships taken up by Mishkin in Chapter 4?
• Why do smart investors need to understand the distinction between an interest rate and the more comprehensive conception of a "return rate"? What is this distinction?
• Why do smart investors need to distinguish carefully between nominal and real interest rates (and similary for return rates)? What is this distinction between "nominal" and "real"?
• What is "interest rate risk" and whose risk are we talking about?

Key Issues (M4-B):

• Calculating the current yield for a consol bond
• For a coupon bond:
  • How does its maturity affect the relationship between its current yield and its yield to maturity?
  • What is the relationship between its current yield, its COUPON RATE, its purchase price, and its face value?
  • What is the relationship between its current yield, its YIELD TO MATURITY, its purchase price, and its face value?
  • What is the relationship between its current yield and its purchase price, given any fixed level for its coupon payment?
  • All else remaining the same, why do its current yield and its yield to maturity always move together?
• For a discount bond, all else remaining the same, why do its discount yield and its yield to maturity always move together?
• How to read financial bond pages for information on Treasury bonds and notes, Treasury bills, and corporate bonds traded on stock exchanges.
• Why is the return rate on a bond not necessarily equal to its interest rate?
• For a coupon bond, when is its return rate equal to its current yield? Its return rate equal to its yield to maturity?
• How does the maturity of a bond affect its interest rate risk?
• Why do bonds with long maturities expose bond holders to greater interest rate risk than bonds with shorter maturities?
• What is the relationship between real and nominal interest rates?
• Why do real interest rates provide a more accurate measure of the true costs of borrowing and the true gains from lending than nominal interest rates?
• Why do real return rates provide a more accurate measure of the true gains or losses from holding an asset than nominal return rates?

Mishkin Chapter 5 ("The Behavior of Interest Rates")

Key In-Class Discussion Questions (M5):

• How can the standard demand and supply curve analysis from Principles of Micro 101 be applied to bond markets to determine equilibrium bond prices and interest rates?
• What kinds of factors cause movements along the demand and supply curves?
• What kinds of factors cause shifting of the demand and supply curves?
• How is the equilibrium bond price (interest rate) affected by these shifts?
• In what sense is the analysis "short run"?
• (Web Browse Question) Can we approach the modeling of financial markets in a more dynamic way? (Most definitely yes! For example, we can grow financial markets "from the bottom up." Take a look at some exciting new developments along these lines reported on at http://www.econ.iastate.edu/tesfatsi/afinance.htm)

Key Issues (M5):

• Factors causing movements along the bond demand curve
• Factors causing the bond demand curve to shift
• Factors causing movements along the bond supply curve
• Factors causing the bond supply curve to shift
• Predicted movements in the price of bonds in response to an excess demand or supply of bonds
• Predicted effects on bond market equilibrium of changes in various factors such as wealth, expected interest rates, expected inflation, and the government deficit
• Relationship between bond market analysis and loanable funds market analysis
• Predicted movements in the interest rate on bonds in response to an excess demand or supply of loanable funds
• In what sense is the demand and supply analysis in Mishkin (Chapter 5) partial equilibrium in nature? In particular, why must his caution "all other economic variables are held constant" given at the beginning of Chapter 5 always be kept in mind when considering the practical application of the predictions he obtains from his demand and supply analysis of the bond market?

Mishkin Chapter 7: Part A ("Stock Market Pricing")

Key In-Class Discussion Questions (M7-A):

• What distinguishes fundamental from behavioral models of stock market pricing?
• Form and interpretation of the one-period common stock valuation model and its multiple period generalization
• Are price bubbles ruled out by the one-period stock valuation model? by the generalized model?
• Under what conditions does the Gordon Growth Model make empirical sense?
• Applications of the Gordon Growth Model (9/11, Enron scandals, monetary policy effects)
• What kinds of information are provided in the stock pages appearing in financial sections of newspapers such as the Wall Street Journal and the New York Times? How does it compare with the kinds of stock information provided on-line, e.g., at cnn.com?

Key Issues (M7):

• Basic assumptions underlying fundamental models of stock market pricing
• Basic assumptions underlying behavioral models of stock market pricing
• Specific assumptions underlying the one-period stock valuation model
• Definition of a "price bubble"
• Specific assumptions underlying the generalized (infinite horizon) stock valuation model
• Specific assumptions underlying the Gordon Growth Model
• How to read stock pages in the financial sections of newspapers

Mishkin Chapter 7: Part B ("Rational Expectations and the Efficient Market Hypothesis")

Key In-Class Discussion Questions (M7-B):

• How do economists model the way investors form their expectations?
• How do "adaptive" expectations differ from "rational" expectations?
• What is the "Efficient Market Hypothesis (EMH)"?
• Empirical evidence for and against the EMH in stock markets?
• Does the EMH provide practical advice for investing in the stock market?
• Evidence for and against the EMH in other markets?
• Application: Black Monday Crash of 1987

Key Issues (M7):

• Definition for "adaptive expectations"
• Definition(s) for "rational expectations"
• Various forms of the Efficient Market Hypothesis (EMH)
• Empirical evidence relating to the EMH

Mishkin Chapter 17 ("Foreign Exchange Market")

Key In-Class Discussion Questions (M17):

• Why is "arbitrage" (i.e., the seeking out and exploitation of ways to make money through the buying and selling of an asset at two different prices) thought to be such a powerful organizing principle for thinking about financial transactions?
• In what sense is the "Purchasing Power Parity" (PPP) condition based on arbitrage principles? What are its strengths and weaknesses as a predictive tool for exchange rates? How about its use as a means of obtaining international cross-country data comparisons?
• What about the "interest parity" condition? Is this arbitrage condition based on firmer footing than the PPP condition? Why or why not?
• (Web Browse Question) What is the European Union, and what are the potential advantages and disadvantages of joining the European Union?
• (Web Browse Question) What is the eurozone, and what are the potential advantages and disadvantages of joining the eurozone?

Key Issues (M17):

• "Law of one price" motivation for PPP condition
• Empirical evidence for and against PPP condition
• Key possible explanations for empirical problems with the PPP condition
• Arbitrage opportunities arising purely from changes in real exchange rates
• Motivation for the interest parity condition in real or nominal form
• In what sense does the interest parity condition express the absence of unexploited profit opportunities associated with international currency exchanges?
• Empirical support for the interest parity condition
• History, structure and operation (including membership requirements), current members, and potential members of the European Union and the eurozone.

Mishkin Chapter 18 ("International Financial System")

Key In-Class Discussion Questions (M18):

• Why worry about international accounts?
• How is national income accounting done for open economies?
• How does "ROW savings" figure into national income accounting for open economies?
• How do countries keep track of the flows of currencies across their borders through "balance of payment" accounts?
• How are these accounts separated into current and capital accounts?
• Why is there so much confusion between the balance of payments accounting identity and the balance of payments equilibrium condition?
• What is a "current account deficit"? What is a "balance of payments deficit"? What does balance of payments "equilibrium" mean for a country?
• How bad is it for a country to maintain a persistent current account deficit? A persistent balance of payments deficit?
• (Web Browse Question) Which countries currently have major balance of payments deficit problems, and why?
• (Web Browse Question) What is the official role of the International Monetary Fund (IMF) with regard to balance of payments problems?
• (Web Browse Question) Why are so many people now calling for major reform or even abolishment of the IMF?

Key Issues (M18):

• Inclusion in the current account of net investment income from both real and financial assets
• Re-expression of the standard national income accounting identity Y=C+I+G+NE into Saving=Investment form
• Connection between the HC current account and ROW saving
• Relationship between the HC current account, HC national saving, and HC total investment
• HC current account surplus (deficit) as a measure of HC net lending to (borrowing from) ROW
• Treatment of official reserve asset transactions within the balance of payment accounts
• Importance of distinguishing carefully between the balance of payments accounting identity (which always holds by definition) and balance of payments equilibrium (which may or may not hold at any given time)
• Difficulties in practice associated with attempts to sustain a persistent BP deficit or surplus
• Difficulties with BP equilibrium as a policy objective
• BP equilibrium (external balance) with a fixed nominal exchange rate
• BP equilibrium (external balance) with a flexible nominal exchange rate
• History, structure and operation (including membership requirements), current objectives, and current membership of the IMF
• Protests challenging the role of the IMF in the world today.

Mishkin Chapter 8 ("Financial Structure"): Part A

Key In-Class Discussion Questions (M8-A):

• According to Mishkin, what are the basic "stylized facts" characterizing the current U.S. financial system?
• Mishkin argues that many of the structural aspects of the U.S. financial system can be explained in terms of transactions costs and asymmetric information problems. What are his arguments? Are they convincing?
• (Web Browse Question) In what ways, if any, are Mishkin's concerns about asymmetric information problems in securities markets exemplified by the Enron bankruptcy scandal?

Key Issues (M8-A):

• Eight puzzles regarding real-world U.S. financial structure
• What are the advantages and disadvantages for U.S. corporations of using stock issue as a source of external finance?
• What are the advantages and disadvantages for U.S. corporations of using bond issue as a source of external finance.?
• What are the advantages and disadvantages for U.S. corporations of using INDIRECT finance as a source of external finance?
• What are the advantages and disadvantages for U.S. corporations of using banks in particular as a source of external finance?
• Why is the U.S. financial sector so heavily regulated?
• Why do larger firms tend to have easier access to U.S. securities markets for external finance?
• Why is collateral such a prevalent feature of U.S. debt contracts?
• Why are U.S. debt contracts so complicated and full of restrictive covenants?
• How do transaction costs help to explain puzzle 3?
• How does adverse selection help to explain puzzles 1 through 7?
• How does moral hazard help to explain puzzles 1-5 and 7-8?

Mishkin Chapter 8 ("Financial Structure"): Part B

Key In-Class Discussion Questions (M8-B):

• (Web Browse Question) What happened to the U.S. financial sector during the Great Depression? During the 1980s savings and loan crisis?
• (Web Browse Question) What has been the root cause and progression of recent financial crises in other parts of the world (Thailand, Malaysia, South Korea, Indonesia, Japan, Russia, Brazil, Mexico, Argentina, ...)?
• Does Mishkin succeed in providing a credible **theory** of financial crises for developed economies such as the U.S.? For emerging economies such as Mexico?
• What is the feasibility and/or desirability of having an institutionalized global safety net?

Key Issues (M8-B):

• How do poorly functioning financial markets hurt economic growth and development?
• Under what conditions do financial markets tend to function poorly?
• Are financial crises largely caused by information problems?
• How can interest rate increases trigger or worsen adverse selection problems?
• How can increases in lender uncertainty trigger or worsen financial crises?
• How can net worth declines trigger or worsen financial crises?
• How can stock market declines cause net worth to decline?
• How can inflation rate declines cause net worth to decline?
• How can exchange rate changes cause net worth to decline?
• How can interest rate increases cause net worth to decline?
• How can bank panics trigger or worsen financial crises?
• According to Mishkin, what has been the typical sequence of events for U.S. financial crises?
• What happened during the U.S. Great Depression?
• Why do aggregate price level declines result in increased debt burdens?
• How can debt deflation trigger or worsen financial crises?
• Why is it important to distinguish between cash flow (liquidity) problems and insolvency?
• According to Mishkin, what has been the typical sequence of events for recent financial crises in developing countries?
• What happened during the 1994--1995 Mexican financial crisis?
• How was Mexico assisted out of its financial crisis?
• What controversies have arisen regarding this assistance to Mexico?
• What kinds of proposals have been made regarding the institution of a global safety net?
• What are the potential advantages and disadvantages of these proposals?

Mishkin Chapter 9 ("Banking...")

Key In-Class Discussion Questions (M9):

• Traditional banking -- is it going the way of the vinyl record?
• What problems might arise as banks increasingly engage in off-balance-sheet activities? (Think Enron)
• Do banks really need to be so cautious that they end up only lending to those who don't really need the money?
• (Web Browse Question) What are the potential benefits and pit-falls of the non-traditional "small banking" approach pioneered by the Grameen Bank (Bangladesh)?

Key Issues (M9):

• What are the primary sources of bank funds in the U.S. today?
• What are the primary uses of bank funds in the U.S. today?
• What kinds of moral hazard problems can arise between banks and their borrowers?
• What kinds of moral hazard problems can arise between banks and their depositors?
• What kinds of moral hazard problems can arise between banks and their regulators?
• Why does the existence of off-balance-sheet activities tend to worsen moral hazard problems between banks and their depositors and regulators?

Mishkin Chapter 10/11 ("U.S. Banking...): Part A

Key In-Class Discussion Questions (M10/11-A):

• How does the structure of the U.S. banking system compare with those of other countries?
• How have the issues of big government vs. minimal government, and national vs. states' rights, driven the history of banking in the U.S.?
• Key U.S. banking legislation -- what effects have these acts had on the evolution of the U.S. banking system?
• How, in particular, did the financial collapse that occurred in the early years of the U.S. Great Depression affect the form of financial regulation in the U.S. in subsequent years?
• (Web Browse Question) What is the 1999 Gramm-Leach-Bliley Act all about?
• (Web Browse Question) How independent is the Fed (the U.S. central bank) from the U.S. executive branch? How much *institutional* power (versus personal power) does the Fed Chairman, Alan Greenspan, actually have?
• Is it necessarily a good thing to have a central bank independent of the executive branch of government?

Key Issues (M10/11-A):

• What are the key empirical facts characterizing U.S. banking today?
• What are the key ways in which U.S. banking differs from banking abroad?
• What key historical events led to a dual banking system in the U.S.?
• What are the key provisions of the Federal Reserve Act of 1913? In particular, how did this act structure the U.S. central bank (the Federal Reserve system)?
• What are the key provisions of the Banking Act of 1933 (Glass-Steagall)?
• What arguments have been given for and against the separation of banking and securities activities in the U.S., as imposed by the 1933 Glass-Steagall Act?
• Why are the advantages and disadvantages of bank branching restrictions?
• What kinds of branching restrictions were imposed on U.S. banks before 1994?
• What are the key provisions of the 1994 Riegle-Neal Interstate Banking and Branching Efficiency Act?
• How have the provisions of the 1933 Glass-Steagall act been significantly weakened by the November 1999 Gramm-Leach-Bliley Act?

Mishkin Chapter 10/11 ("Financial Innovation..."): Part B

Key In-Class Discussion Questions (M10/11-B):

• What are some of the most important financial innovations that have been introduced in the U.S. since the 1950s, and what has led to their development?
• How have these financial innovations affected the profitability and viability of traditional banking in the U.S.?
• How did the U.S. financial crisis in the 1980s shape subsequent efforts to restructure the U.S. financial system?
• Is government-provided deposit insurance always a good thing?
• Are asset holding restrictions and capital requirements simply a costly nuisance, or are they an essential aspect of sound banking?
• What's wrong (if anything) with permitting interstate bank branching? Should we worry about "saving the family banker" just like we worry about "saving the family farmer"?
• Should banks have to obtain charters (licenses) in order to do business?
• What is the 1977 Community Reinvestment Act (CRA) all about, and why is it so controversial?
• (Web Browse Question) Why are some commentators concerned that the major financial restructuring called for in the 385-page (!) 1999 Gramm-Leach-Bliley Act will increase the difficulty of maintaining suitable oversight of financial institutions in the U.S., perhaps encouraging "Enron"-type scandals in the future?
• (Web Browse Question) Why are some commentators concerned about the possibility of vastly reduced consumer privacy under the provisions of the Gramm-Leach-Bliley Act?

Key Issues (M10/11-B):

• What kinds of financial innovations have arisen in the U.S. from attempts to get around U.S. bank branching restrictions?
• Why have U.S. banks increasingly opened branches abroad in recent years?
• What empirical events in the U.S. have led to the financial engineering of new types of financial products?
• What are some examples of these financially engineered products?
• Why do banking regulations tend to encourage financial innovation?
• How have money market funds, junk bonds, commercial paper, and securitization tended to reduce the profitability of traditional bank lending?
• What types of government safety net provisions have been enacted for U.S. banks, and what was the reason for their enactment?
• What kinds of weaknesses in these government safety net provisions were revealed during the U.S. financial crisis in the 1980s?
• What government safety net reforms were introduced in the U.S. as a result of the U.S. financial crisis in the 1980s?
• Why have bank regulators imposed asset holding restrictions on U.S. banks, and what form have these restrictions taken?
• What are the possible advantages and disadvantages of these asset holding restrictions?
• Why have bank regulators imposed capital (net worth) requirements on U.S. banks, and what form have these requirements taken?
• What are the possible advantages and disadvantages of these capital requirements?
• Why have bank regulators imposed chartering restrictions on U.S. banks, and what form have these chartering restrictions taken?
• What are the possible advantages and disadvantages of these chartering restrictions?
• Why have bank regulators imposed disclosure requirements on U.S. banks, and what form have these requirements taken?
• What are the possible advantages and disadvantages of these disclosure requirements?
• What kinds of consumer protection laws have been imposed on U.S. banks?