1. For each statement below answer true or false. .If your answer is false, briefly explain why it is false.

a. The McFadden Act of 1927 separated commercial banking from investment banking

b. Moral hazard problems arise when lenders have difficulty in distinguishing between good and bad firms.

c. A bank run is an extreme form of interest rate risk

d. Holding profits and assets constant, an increase in a bank's leverage ratio increases the bank's ROE.

e. A bank with liabilities of $80 and net worth of negative $30 has assets of$50

f. Setting higher capital requirements for systemically important financial institutions is an example of micro-prudential regulation

g. Credit risk for banks refers to the risk of liquid liabilities exceeding liquid assets

2. Why do banks hold more liquid assets than most businesses?