This time the discussion is conceptual requiring qualitative logic and problem solving, not quantitative. I.e. there is no "regression" and no "correlative" analysis required.

There are 2 numbered questions below you are to choose one of the 2 numbered questions and indicate in your reply subject line which number you are responding to 1) beginning with "A local flavor" or 2) beginning with "this question is also about bank failure"

1. A "local flavor." There are many rules and policies in place to ensure that banks in the U.S. are adequately capitalized. One institution that ran afoul of those regulations is "Cecil Bank" of Elkton MD. See: https://www.federalreserve.gov/newsevents/pressreleases/files/enf20150811a1.pdf Some further information regarding regulations of the FDIC are found at: https://www.fdic.gov/regulations/laws/rules/2000-4500.html and at https://www.fdic.gov/regulations/laws/rules/1000-4000.html the second one of these identifies "levels of capital adequacy".
   1. From a general, or layman's level, what is the purpose of requiring banks to hold any levels of capital- your response should include the term "moral hazard".
   2. Within the framework of your response to a. why is it important that banks with a riskier portfolio of assets retain more capital that banks with less risky portfolio of assets?
   3. Explain how increasing reserve requirements might meet the same ends as increasing capital requirements to support riskier asset portfolios by banks.
   4. Explain how increasing capital requirements might be superior to increasing reserve requirements to support risker asset portfolios by banks.
   5. The polar opposite case of increased capital is that of a zombie institution as defined in the reading guide for Chapter 10. Explain what a zombie institution is and why, using moral hazard concepts, they prevent safe banking practices.