Suppose a bank doesn't have sufficient fund to meet the depositors' withdrawal In this case, to maintain stability and public confidence in the banking system the government can
A)close the bank, sell it, and distribute the proceeds to the depositors
B)provide deposit insurance facility to prevent bank runs
C)let the bank merge with another solvent bank which will then pay the depositors
D)ask the bank to raise more equity to pay off the depositors
E)both c and d

Question

Quizplus · Accepted Answer

Providing a deposit insurance facility can prevent bank runs and help maintain public confidence in the banking system. This is the most common approach taken by governments around the world to protect depositors in case of bank failures. Closing the bank, selling it or asking the bank to raise more equity may not be viable options in all cases, and may not be effective in preventing bank runs or maintaining public confidence. Merging with another solvent bank might be an option, but it could also be risky and may result in further instability in the banking system.

Suppose a Bank Doesn't Have Sufficient Fund to Meet the Depositors