The most effective mechanism for reducing runs on banks is _____.
A)the discount rate
B)deposit insurance
C)the reserve requirement
D)open-market operations
E)the Federal Reserve note

Question

Quizplus · Accepted Answer

Deposit insurance, provided by the Federal Deposit Insurance Corporation (FDIC), is the most effective mechanism for reducing runs on banks as it guarantees the safety of deposits up to a certain amount, which helps to restore customers' confidence in the banking system. The other options listed can also play a role in stabilizing the banking system, but deposit insurance specifically targets the problem of runs on banks.

The Most Effective Mechanism for Reducing Runs on Banks Is