An ideal solution to react to a large failing bank would prevent a run on deposits of other large banks, yet not reward a poorly performing bank with a bailout.

Question

Quizplus · Accepted Answer

This statement is true. An ideal solution should have measures in place to prevent a domino effect of bank failures and prevent a panic-induced run on deposits from other large banks. However, at the same time, the solution should not reward a poorly performing bank with a bailout, as this sends the wrong message to the market and sets a dangerous precedent for future failures.

An Ideal Solution to React to a Large Failing Bank