Recession can cause widespread bank crises for all of the following reasons except:
A) there is less business investment as banks make fewer loans.
B) borrowers' default rates increase.
C) bank capital increases.
D) the negative effect on banks' balance sheets.

Question

Quizplus · Accepted Answer

Bank capital does not increase during a recession; in fact, it may decrease as a result of loan defaults and decreased profitability. The other options (A, B, and D) are all factors that can contribute to bank crises during a recession.

Recession Can Cause Widespread Bank Crises for All of the Following