8-23 When interest rates increase,banks are more likely to be forced to increase rate-sensitive liabilities to replace decreased balances in demand deposits and savings accounts.

Question

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When interest rates increase, customers are more likely to move their money out of demand deposits and savings accounts into higher-yielding investments. Banks may be forced to increase the interest rates they offer on certificates of deposit (CDs) or other rate-sensitive liabilities to attract funding to replace the lost balances.

8-23 When Interest Rates Increase,banks Are More Likely to Be