The argument that deposit insurance can prevent the failure of an otherwise sound bank is based on the idea that

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The argument that deposit insurance can prevent the failure of an otherwise sound bank is based on the idea that the existence of deposit insurance may prevent self-fulfilling panics. This means that the presence of deposit insurance in a bank can prevent a panic caused by fears of bank failure and the resulting withdrawal of funds from the bank, which can lead to the bank's failure. Therefore, the answer is B.

The Argument That Deposit Insurance Can Prevent the Failure of an Otherwise