What Is the Drawback of Deposit Insurance Facility

question 50

Multiple Choice

What is the drawback of deposit insurance facility?

• A)Even when the DI is in trouble, the deposit holder has no incentive to run.
• B)DIs are more likely to increase the liquidity risk on their balance sheets.
• C)Deposit holder's place in line affects his or her ability to obtain their funds.
• D)Deposit insurance does not deter contagious runs and panics.
• E)Deposit holders are less likely to panic if there is a perceived bank solvency problem.

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Definitions:

Cost of Paper

The expenditure associated with acquiring paper, which can vary based on type, quality, quantity, and market conditions.

Confidence Interval

A band of values, derived from empirical data, hypothesized to enfold the value of an unseen population parameter.

Prediction Interval

A range of values that is likely to contain the value of an unknown future observation within a specified confidence level.

Spread Residuals

The differences between observed values and the values predicted by a model, spread across the range of predicted values.