Scenario: Alpha Bank has $100,000 in total assets and $45,000 in total liabilities. Beta Bank has $250,000 in total assets and $220,000 in total liabilities.
-Refer to the scenario above.If Beta Bank is faced with a bank run,what must it do?

Question

Quizplus · Accepted Answer

If Beta Bank is faced with a bank run, it must liquidate its long-term, illiquid assets to meet the demand for withdrawals. This will provide the bank with the necessary funds to pay out the deposits being withdrawn and prevent further panic among depositors. Not paying out the deposits or relying solely on the FDIC to cover the withdrawals are not viable options as they can damage the bank's reputation and lead to further problems. Investing more of its short-term assets in long-term assets will only make the situation worse as it will further reduce the bank's liquidity.

Scenario: Alpha Bank Has $100,000 in Total Assets and $45,000