Question

Question 10 of 10

2 Points
Which of the following best describes how the Federal Reserve Bank helps
banks during a bank run?
A. The Federal Reserve Bank acts as an insurance company that
pays customers if their bank fails.
B. The Federal Reserve Bank regulates exchanges to prevent the
demand for withdrawals from rising above the required reserve
ratio.
C. The Federal Reserve Bank has the power to take over a private
bank if customers demand too many withdrawals.
D. The Federal Reserve Bank can provide a short-term loan to banks
to prevent them from running out of money.

Answer 1

D. The Federal Reserve Bank can provide a short-term loan to banks

to prevent them from running out of money.

Step-by-step explanation:

A bank run occurs when a large number of depositors withdraw their deposits simultaneously from a bank.

As the number of withdraws increases, the available cash in the bank decreases until a point that the bank can't give depositors their money.

In these situations, The Federal Reserve Bank acts as a lender of last resort that helps to reinforce the effect of deposit insurance, and to reassure bank customers that they will not lose their money.