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# Bank depositors in the United States are all financially

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Senior Manager
Joined: 07 Mar 2006
Posts: 351

Kudos [?]: 37 [0], given: 1

Bank depositors in the United States are all financially [#permalink]

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26 Jun 2006, 18:38
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Bank depositors in the United States are all financially protected against bank failure because the government insures all individuals' bank deposits. An economist argues that this insurance is partly responsible for the high rate of bank failures, since it removes from depositors any finan-cial incentive to find out whether the bank that holds their money is secure against failure. If depositors were more selective, then banks would need to be secure in order to compete for depositors' money.

The economist's argument makes which of the following assumptions?

A Bank failures are caused when big borrowers default on loan repayments.

B A significant proportion of depositors maintain accounts at several different banks.

C The more a depositor has to deposit, the more careful he or she tends to be in selecting a bank.

D The difference in the interest rates paid to depositors by different banks is not a significant factor in bank failures.

E Potential depositors are able to determine which banks are secure against failure.

Kudos [?]: 37 [0], given: 1

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Senior Manager
Joined: 07 Jul 2005
Posts: 404

Kudos [?]: 14 [0], given: 0

Location: Sunnyvale, CA

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26 Jun 2006, 18:47
(E)

this is the only relevant assumption.
Also, you need to change the subject to CR .. It incorrectly mentions as SC..

Kudos [?]: 14 [0], given: 0

SVP
Joined: 30 Mar 2006
Posts: 1728

Kudos [?]: 95 [0], given: 0

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26 Jun 2006, 21:27
Will go with E.

Clearly for the economist to suggest that consumers should be selective, he/she has to assume that consumers are capable of determining the factors that make a bank a stronger candidate

Kudos [?]: 95 [0], given: 0

26 Jun 2006, 21:27
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