What Is the Drawback of Deposit Insurance Facility

question 28

Multiple Choice

What is the drawback of deposit insurance facility?

• A)Even when the DTI is in trouble, the deposit holder has no incentive to run.
• B)DTIs 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:

Mood Linkage

Mood linkage refers to the phenomenon where the emotional state of one individual affects and aligns with the emotional state of another individual in a social context.

Informational Social Influence

The phenomenon where individuals conform to the behavior of others, assuming it reflects correct behavior in a given situation.

Social Facilitation

The tendency for individuals to perform better on tasks in the presence of others than when alone.

Social Loafing

A phenomenon whereby individuals exert less effort to achieve a goal when they work in a group than when they work alone.