W 7

Question 1

What are the 3 ways of state intervention?

Answer 1

1. State guaranteed funding
2. Recapitalisation by the State
3. Impaired assets measures

Question 2

If the regulators are focusing on market discipline…

Answer 2

• Less generous safety nets
• Authorities are more likly to let inefficient banks fail

BUT

Run the risk of instability and bank runs

Question 3

If the regulators are focusing on financial stability…

Answer 3

authorities less inclined to let banks fail.
Inefficient institutions may be kept in the market, also via bail-outs,

BUT

this may foster moral hazard and TBTF issues and hamper market discipline.