What is the benefit of a regulatory guarantee or deposit insurance program for liability holders of FIs?
A)It decreases the likelihood contagious runs.
B)It increases concerns about the asset quality of FI.
C)It increases concerns about solvency of an FI.
D)It provides preference to those who are first in line to withdraw funds over those last in line.

Question

Quizplus · Accepted Answer

A regulatory guarantee or deposit insurance program can decrease the likelihood of contagious runs, as liability holders are more likely to feel confident in leaving their funds with an FI knowing that their deposits are protected. This can help to prevent a domino effect of withdrawals from one institution spreading to others.

What Is the Benefit of a Regulatory Guarantee or Deposit