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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Definitions:

Incorporation Process

The legal concept in which the U.S. Supreme Court has applied the protections of the Bill of Rights to the states using the Fourteenth Amendment.

Fourteenth Amendment

A constitutional amendment adopted in 1868 that grants citizenship to all persons born or naturalized in the United States, including former slaves, and provides all citizens with “equal protection under the laws.”

State Restrictions

Laws or regulations imposed by state governments to limit or control certain activities or behaviors.

Establishment Clause

The Establishment Clause is part of the First Amendment to the US Constitution, prohibiting the government from making any law respecting an establishment of religion, thereby ensuring a separation of church and state.