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Answer: Banks were encouraged to establish an independent risk management function with access to the board of directors.
The correct answer is B. One of the key governance recommendations is that banks should establish an independent risk management function with access to the board of directors. This prevents the risk function from being suppressed, as it would be if it was subordinate to other divisions such as trading operations, and ensures that the board is advised of risk issues. The other options are incorrect because: - A is incorrect as securitization was a key contributor to the crisis, and post-crisis governance did not encourage increased securitization. - C is incorrect because regulations like Dodd-Frank's Volcker rule prohibited banks from proprietary trading, and many trading operations were required to be separated from banking operations. - D is incorrect as post-crisis regulation encouraged central clearing for derivatives rather than over-the-counter (OTC) trading to provide greater transparency and reduce systemic risk.
Author: LeetQuiz Editorial Team
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A junior analyst currently undergoing training to become a bank examiner at a national banking supervisory authority has been assigned the task of outlining the progression of banking regulations that emerged following the 2007-2009 financial crisis. The analyst should specifically concentrate on how these regulatory changes were implemented to enhance risk governance.
A
Banks were required to securitize all the mortgages they originate in order to distribute risk across financial institutions.
B
Banks were encouraged to establish an independent risk management function with access to the board of directors.
C
Proprietary trading operations were merged with traditional banking operations to provide banks better governance over their trading desks.
D
Derivatives were encouraged to be traded OTC rather than centrally cleared to provide greater transparency.