The government provides insurance for individuals' bank deposits, but

Question

The government provides insurance for individuals' bank deposits, but requires the banks to pay the premiums for the insurance. Since it is depositors who primarily benefit from the security this insurance provides, the government should take steps to ensure that depositors who want this security bear the cost of it and thus should make depositors pay the premiums for insuring their own accounts.

Which of the following is assumed by the argument?

(A) Banks are not insured by the government against default on the loans the banks make.

(B) Private insurance companies do not have the resources to provide banks or individual with deposit insurance.

(C) Banks do not always cover the cost of the deposit-insurance premiums by paying depositors lower interest rates on insured deposits than the banks would on uninsured deposits.

(D) The government limits the insurance protection it provides by insuring accounts up to a certain legally defined amount only.

(E) The government does not allow banks to offer some kinds of accounts in which deposits are not insured.

Source: LSAT

Similar question:  LINK

Bunuel · Accepted Answer

OFFICIAL EXPLANATION

(A) No. Only customer deposits are discussed in the passage, not bank loans.

(B) No. This is irrelevant since the passage states that the government provides the insurance.

(C) Yes.  The passage states that individuals do not pay for deposit insurance. This assumes that they do not pay indirectly through decreased benefits elsewhere.

(D) No. This is irrelevant since depositors still benefit from insurance protection up to the stated limit.

(E) No. Suppose the government did allow banks to offer some kinds of accounts which were not insured and which did not offer any additional benefits to the depositor (e.g., higher interest rates or lower fees). Then owners of insured deposits would receive the same benefits at no extra cost as owners of uninsured deposits, and the argument’s conclusion would still hold.

niks18 · Answer

Here the conclusion is "thus should make depositors pay the premiums for insuring their own accounts". The author is assuming that banks are paying the premium and banks are not charging the customers for it.

Option A - Extraneous information, out of scope
Option B - Extraneous information, out of scope
Option C - Correct. this options states that banks are not charging customers by lowering their interest rates
Option D - Extraneous information, out of scope
Option E - Extraneous information, out of scope

PP777 · Answer

Hey  abhimahna ,

I am confused between options C and D.
Could you please explain why option C is correct?

Skywalker18 · Answer

Hi PP777 , Conclusion - government should take steps to ensure that depositors who want this security bear the cost of it and thus should make depositors pay the premiums for insuring their own accounts. Pre-thinking - The argument assumes that as of now customers are not paying the insurance premium by some other means. (C) Banks do not always cover the cost of the deposit-insurance premiums by paying depositors lower interest rates on insured deposits than the banks would on uninsured deposits. - On negating this , the argument falls apart - Banks always cover the cost of deposit-insurance premiums by paying depositors lower interest rates on insured deposits than the banks would on uninsured deposits. (D) The government limits the insurance protection it provides by insuring accounts up to a certain legally defined amount only. -- Incorrect - even if there is a limit of say 10,000 $ Up to which deposit is insured, does it affect that depositors need to pay for premium? Hope this helps!!

SSM700plus · Answer

Premise :- Govt. provides insurance for individuals' bank deposit but banks should pay premiums for the insurance. Depositors are directly beneficial from the security that insurance provides

Conclusion - depositors must pay the premiums for insuring their own accounts And Govt should take some steps in this direction.

Assumption :- Anything that hints towards - depositor not paying the fee directly or indirectly will be valid assumption.

(A) Banks are not insured by the government against default on the loans the banks make. -  Out of scope banks insured against default loans is not related to the discussion.

(B) Private insurance companies do not have the resources to provide banks or individual with deposit insurance.  - Resources availability of Private Companies is not in the scope of arguments

(C) Banks do not always cover the cost of the deposit-insurance premiums by paying depositors lower interest rates on insured deposits than the banks would on uninsured deposits. 
 This choice correctly states the assumption. On reading carefully, we can understand that depositor need to pay the premium because banks do not always cover the cost of deposit - insurance by paying lower interest rates on insured deposits
Negating the statement breaks the conclusion. Hence it is right choice.

(D) The government limits the insurance protection it provides by insuring accounts up to a certain legally defined amount only.  - Limiting the insurance protection and insuring defined amount again breaks the conclusion

(E) The government does not allow banks to offer some kinds of accounts in which deposits are not insured. --  This is going against the conclusion

Answer - C

DharLog · Answer

The government provides insurance for individuals' bank deposits, but requires the banks to pay the premiums for the insurance. Since it is depositors who primarily benefit from the security this insurance provides, the government should take steps to ensure that depositors who want this security bear the cost of it and thus should make depositors pay the premiums for insuring their own accounts.

Which of the following is assumed by the argument?

(A) Banks are not insured by the government against default on the loans the banks make. 
 Loans, not deposits

(B) Private insurance companies do not have the resources to provide banks or individual with deposit insurance. 
 Irrelevant

(C) Banks do not always cover the cost of the deposit-insurance premiums by paying depositors lower interest rates on insured deposits than the banks would on uninsured deposits. 
 Good. If banks always cover the cost of the deposit-insurance premiums by paying depositors lower interest rates on insured deposits, than there will be no need to demand payments of these premiums from final users (depositors). The banks pay everything. So the conclusion folds. Thus it is our assumption

(D) The government limits the insurance protection it provides by insuring accounts up to a certain legally defined amount only. 
 Does not explain anything

(E) The government does not allow banks to offer some kinds of accounts in which deposits are not insured.
 Does not explain 
Source: LSAT

Similar question:  LINK 
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RainySunshine · Answer

Hi, can someone explain why C as in the passage it is written that govt provides insurance for all deposit accts, so uninsured deposits become out of scope, right?

guddo · Answer

The government provides insurance for individuals' bank deposits, but requires the banks to pay the premiums for the insurance. Since it is depositors who primarily benefit from the security this insurance provides, the government should take steps to ensure that depositors who want this security bear the cost of it and thus should make depositors pay the premiums for insuring their own accounts.
 
 Which of the following is assumed by the argument?

The argument says depositors should pay the insurance premiums because they are the ones who benefit from the insurance.  The key assumption  is that  depositors are not already bearing the cost indirectly through the banks .

(A) Banks are not insured by the government against default on the loans the banks make.

Incorrect. Insurance on bank loans is unrelated to who ultimately pays for deposit insurance.

(B) Private insurance companies do not have the resources to provide banks or individual with deposit insurance.

Incorrect. The argument does not depend on whether private insurers could provide this insurance.

(C) Banks do not always cover the cost of the deposit-insurance premiums by paying depositors lower interest rates on insured deposits than the banks would on uninsured deposits.

Correct.   If banks already recover the premium cost from depositors by paying them lower interest rates, then depositors are already bearing the cost indirectly. The reference to uninsured deposits is hypothetical: it compares the interest depositors receive now with what they would receive if those same deposits were uninsured. The argument therefore assumes that banks do not always pass the insurance cost on to depositors in this way.

(D) The government limits the insurance protection it provides by insuring accounts up to a certain legally defined amount only.

Incorrect. The amount of insurance coverage does not affect the argument about who should pay the premiums.

(E) The government does not allow banks to offer some kinds of accounts in which deposits are not insured.

Incorrect. The argument does not require all bank accounts to be insured.

Answer: (C)

I think the key is that (C) does  not require uninsured deposits to actually exist . It is making a  hypothetical comparison : the interest rate banks pay on insured deposits versus what they would pay if those same deposits were uninsured.

So uninsured deposits are not out of scope. (C) is simply testing whether banks already pass the insurance cost on to depositors through lower interest rates.

The government provides insurance for individuals' bank deposits, but

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The government provides insurance for individuals' bank deposits, but

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