Question

Banks can protect themselves from the disruption caused by deposit outflows by A. "calling in" loans B. holding excess reserves C. selling securities D. borrowing from other banks E. borrowing from the Fed F. doing all of the above

Answer 1

D, doing all of the above

Step-by-step explanation:

Deposit outflow is a situation in which deposits are lost as a result of continous withdrawals by depositors.

In other for banks to protect themselves from this sort of situation, the bank can choose to do all of the options in the questions which includes callin-in loans, holding excess reserves and/or selling securities. This helps the bank to maintain account balances amongst other things.

To reduce or eradicate deposit outflow is the reason for deposit insurance. Deposit Insurance corporations or companies helps banks to reduce their deficits or losses when they are at the point of not being able to pay deposits when due.

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