Deposit insurance and bank failure
Banks fail when all depositors try to withdraw money at the
same time. One way to prevent this problem would be to require banks to hold
100% of deposits on hand. Why would this not be a desirable thing to do? What
would happen to the banking system? What would you expect to see happen to the
cost of a checking account if banks could not make loans? What would happen to
the amount of investment made by businesses? Explain.
Categories: