Which of the following are arguments against unit banking? I. Unit banking decreases economies of scale. II. Unit banking increases bank risk.
III) Unit banking allows for more competition.
A)I only II
B)only III
C)only I
D)and II

Question

Quizplus · Accepted Answer

Argument I is true because unit banking limits a bank's ability to spread fixed costs over a larger asset base, thereby decreasing economies of scale. Argument II is also true because unit banking increases bank risk. As a single bank in a market, a unit bank cannot diversify its loans and investments as effectively as a larger bank with branch networks. This makes it more vulnerable to localized economic downturns or disruptions to its loan portfolio. However, argument III is not a valid argument against unit banking since unit banking actually limits competition by preventing new rivals from entering local markets.

Which of the Following Are Arguments Against Unit Banking? I