Final answer:
The Federal Reserve System prevents bank failures by enforcing reserve requirements, which necessitate that banks hold a certain amount of funds to meet withdrawals. The Fed also regulates the banking system, manages currency circulation, and offers emergency lending to support banks during financial difficulties. The correct option is a. It requires banks to keep a certain amount of money in their reserves.
Step-by-step explanation:
The Federal Reserve System (the Fed) helps to prevent banks from failing primarily through the imposition of reserve requirements.
Banks are required to keep a certain percentage of depositors' money as reserves, whether within their own vaults or at the Federal Reserve Bank. This requirement ensures that banks have a buffer of funds available to meet customers' withdrawal demands and thereby maintain stability in the financial system. In addition, the Fed also plays a crucial role in regulating the financial system and managing the circulation of currency.
To further protect the banking system, the Fed also provides emergency lending to banks through the discount window during times of financial strain. This access to liquidity helps banks avoid failures as a result of short-term pressures.
Moreover, the Fed's oversight of banking practices, addressing systemic risks, and ensuring financial stability, also contribute to the prevention of bank failures. For example, periodic stress tests are conducted to ensure that banks have the capacity to withstand economic downswings. The correct option is a. It requires banks to keep a certain amount of money in their reserves.