Question

Which of the following statements is false? A. Today, most financial assets are held by non-bank entities B. Economic recovery is usually quick following widespread bank failures and/or a financial crisis OC. Today, banks pay a risk-based deposit insurance fee; i.e., riskier banks must pay a higher insurance fee to the FDIC D. Banks constitute a vital utility in the economy, as the economy cannot properly function without access to credit E. The primary reason for the existence of banks is their ability to both screen and monitor loan applicants

Answer 1

If there is a widespread bank failure or a financial crisis, then the times post crisis is the time to recovery and is a challenging time both of financial institutions and businesses. The banks will take extra scrutiny in appraising loans to businesses as liquidity is dry and charge higher interest rates. Consumer confidence is low in the economy and as a result the cumulative spending would be low. This would have a spiral effect on the business sales and investment.

Answer is B)