A Bank Faced with a Large and Sudden Loss of Deposits

question 89

Multiple Choice

A bank faced with a large and sudden loss of deposits is likely to shut down despite a fundamentally sound balance sheet. Why could this be?

• A) Banks have accountants that are too optimistic.
• B) Banks purposely lie about their balance sheets in order to attract more clients.
• C) Many bank assets are illiquid and cannot be sold quickly to meet deposit obligations without substantial loss to the bank.
• D) Many banks operate on a budget that exceeds their actual reserves.
• E) Many banks will shut down to preserve their interest profits.

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