Bank Regulation

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Why are banks one of the most-regulated industries in the US?

To protect depositors and maintain financial stability (correct)

To discourage people from using banks

To ensure fair competition among banks

To increase profits for banks

What is a bank run?

When banks refuse to lend money to customers

When many depositors demand their deposits back at the same time (correct)

When banks close their doors permanently

When banks demand repayment from borrowers

Why is a bank run a problem in a fractional reserve system?

Banks don't have enough branches to handle the demand

Banks don't have enough physical cash to give to depositors

Banks don't have enough borrowers to lend money to

Banks don't have enough reserves to cover all withdrawals (correct)

What is the role of a lender of last resort in mitigating the problem of bank runs?

To lend money to banks during times of financial crisis Signup and view all the answers

What is deposit insurance?

Insurance that protects depositors from losing their money in case of bank failure Signup and view all the answers

Why do banks need to have enough reserves to cover all withdrawals in a fractional reserve system?

To ensure that all depositors can get their money back Signup and view all the answers

What is the purpose of a banking holiday?

To allow banks to temporarily close and prevent bank runs Signup and view all the answers

What is the role of deposit insurance in mitigating the problem of bank runs?

To guarantee that depositors will get their money back even if the bank fails Signup and view all the answers

What are capital requirements for banks?

Minimum amount of capital that banks must hold to support their operations and absorb losses Signup and view all the answers

What is the role of a lender of last resort in mitigating the problem of bank runs?

To provide emergency liquidity to banks during a crisis Signup and view all the answers

Bank Regulation

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Questions and Answers

Why are banks one of the most-regulated industries in the US?

What is a bank run?

Why is a bank run a problem in a fractional reserve system?

What is the role of a lender of last resort in mitigating the problem of bank runs?

What is deposit insurance?

Why do banks need to have enough reserves to cover all withdrawals in a fractional reserve system?

What is the purpose of a banking holiday?

What is the role of deposit insurance in mitigating the problem of bank runs?

What are capital requirements for banks?

What is the role of a lender of last resort in mitigating the problem of bank runs?

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