Final answer:
If all depositors of a bank requested their money at once, a bank run could ensue, potentially leading to the bank's failure. Banks operate on a fractional reserve system, lending out most deposits to earn interest. Regulations and deposit insurance are in place to prevent such runs.
Step-by-step explanation:
If all depositors of a bank requested their deposits at the same time, it is known as a bank run. This scenario could potentially lead to a bank's failure, as banks do not keep all depositors' money on hand; instead, they operate on a fractional reserve banking system. This means answer (c) Banks keep only a fraction of deposits as reserves, is correct for the multiple-choice question posed. The reason banks do not keep the majority of deposits on hand is due to their business model, which involves lending out the deposits to earn interest and thereby generate profit.
To prevent bank runs, banks maintain a reserve ratio set by monetary authorities and also rely on borrowings from the federal reserve or other banks to meet unexpected demands. Bank regulations and safeguards like deposit insurance (e.g., FDIC in the United States) are also in place to protect depositors and prevent the fear and uncertainty that can cause bank runs. Additionally, in extreme cases, government intervention might occur, potentially taking forms other than those listed in the question options.
Historical context provides examples of these scenarios. In the past, particularly before the establishment of robust banking regulations and insurance systems, bank runs caused many banks to fail. The classic film It's a Wonderful Life features a bank run as a plot point, highlighting how fear can impact depositor behavior.