Many Investment Banks Quickly Collapsed When the Housing Market Collapsed

question 24

Multiple Choice

Many investment banks quickly collapsed when the housing market collapsed because

• A) the Federal Reserve was unwilling to provide them with short-term loans.
• B) they ignored the risk assigned by the rating agencies, resulting in leverage ratios that were too low.
• C) new regulations required investment banks to maintain more capital against their residential housing loans than was true for commercial business loans.
• D) they were highly leveraged and had little reserves on hand to meet the short-term debt obligations of the mortgage-backed securities.

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Definitions:

Staff Department

A unit or division within an organization that provides specialized support or services but does not directly contribute to profit.

Line Responsibilities

Obligations and duties of employees within their specific operational areas, directly involved in the core business activities.

Horizontals

Departments within a company that do not develop products but provide services to the various verticals and other horizontals.

Finance Professionals

Individuals with expertise in management of money, investments, and other financial instruments, often working within financial institutions or corporate finance roles.