Since the 1920's, the ratio of assets to capital has almost tripled for commercial banks. Many economists believe this is the direct result of:
A) lower quality management in banks.
B) the increase in branch banking.
C) allowing banks to offer non-bank services.
D) government provided deposit insurance.

Question

Quizplus · Accepted Answer

The increase in the ratio of assets to capital is mainly attributed to the government-provided deposit insurance, which reduces the risk of bank failure and encourages banks to take on more assets. This allows banks to operate with less capital, leading to a higher asset to capital ratio. The other options, lower quality management, increase in branch banking, and allowing non-bank services, may have some impact but are not considered the primary drivers of the increase in the asset to capital ratio.

Since the 1920's, the Ratio of Assets to Capital Has