The apex banking regulator in the country has stated that

Question

The apex banking regulator in the country has stated that banks are favouring profits over customer welfare. This is because banks are not passing on the benefit of cut in policy rates to the borrowers. The regulator regretted that the lending rates of banks have not come down in tandem with reduction in the liquidity reserve ratio rate; rather the rates have gone up.

Which of the following, if true, is most damaging to the position taken by the apex banking regulator?

(A) Banks are in essence businesses so their primary motive should be to make profits

(B) The costs of running a bank have gone up considerably in recent times

(C) Many banks still invest a considerable amount of money in improving the banking experience of their customers

(D) The sales of several high value products such as automobiles and homes have gone down because of the high interest rate charged on loans by banks

(E) Even publicly owned banks have not passed on the benefit of lower liquidity reserve ratio rates to their customers

ChiranjeevSingh · Answer

Argument is like this: 1. Conclusion: banks are favoring profits over customer welfare 2. Premise to 1: banks are not passing on the benefit of cut in policy rates to the borrowers. 3. Premise to 2 (2 is derived from this): lending rates of banks have not come down in tandem with reduction in the liquidity reserve ratio rate; rather the rates have gone up. So, we have a 2-level logic. one premise (3) leads to one conclusion (2), which further leads to the final conclusion (1). Now, lets look at the options: (A) Banks are in essence businesses so their primary motive should be to make profits - doesn't relate to any premise . (B) The costs of running a bank have gone up considerably in recent times - it talks about increase in the costs of bank, which could explain the reason that the banks might not have been able to pass on the benefits to the customers. Thus, it would counter the conclusion that the banks are favoring profits over customer welfare; since the banks have not been able to save money due to high costs, they could not pass the benefit to the customers. It basically attacks the starting premise (statement 3 above) by saying that the banks just can't reduce rates, due to high costs, not due to any other reason. (C) Many banks still invest a considerable amount of money in improving the banking experience of their customers - this can also counter the argument by attacking the second premise (statement 2 above). This option could counter the conclusion by saying that banks have indeed passed on the benefit of reserve ratio cut, by investing in improving banking experience, rather than through a rate cut. However, there is a slight difference. In the argument, the banking regulator is talking about recent cut in rates and passing of this cut to the customers. This option does not say that the banks have increased investments after the rate cut or in recent times; it just says that they still invest. So, there could have been no change in their investment from past. Thus, they might not have passed on the benefit of recent cut in rates. Unlike this, Option B specifically talks about 'recent' increase in costs. Thus, B more strongly counters the argument (D) The sales of several high value products such as automobiles and homes have gone down because of the high interest rate charged on loans by banks - then they should have heeded the bankign regulator anf cut the rates :-D

. This is irrelevant. (E) Even publicly owned banks have not passed on the benefit of lower liquidity reserve ratio rates to their customers - Doesn't attack any premise. Introduces a new angle to the argument. Not relevant. Cheers, CJ

egmat · Answer

@Chiranjeev has provided an excellent explanation, however I would like to modify his explanation of choice C (which is mostly correct)

This choice is  completely neutral  and does not weaken the argument event slightly: This choice simply says that banks did something in the past and they are still doing in now. Its like saying that banks provided free coffee in the past and still do so now. Does it mean that banks have increased their investment in coffee (probably by serving Latte's instead of black coffee) - no. Does it mean that they have decreased the investment - no. Hence, this choice is completely neutral and not a "weak" weakener.

-Rajat

sanjoo · Answer

I am not agree with B..

wat if cost have increase still profit might also increases with that??

ChiranjeevSingh · Answer

Hi,

I agree with most of your explanation. However, I have a query. It would be great if you could help me with this.

The stem is "Which of the following, if true, is most damaging to the  position taken  by the apex banking regulator? ".

What is the position taken by the apex banking regulator?

Isn't this the same as conclusion i.e. "banks are favouring profits over customer welfare"?

If this is the case, isn't option C damaging to this position?

Even, if the stem is changed to the following:

Which of the following, if true, is most damaging to the  argument  by the apex banking regulator?

Still, in this case also, option C is not completely neutral.

Let's see:

1. Conclusion: banks are favoring profits over customer welfare
2. Premise to 1: banks are not passing on the benefit of cut in policy rates to the borrowers.
3. Premise to 2 (2 is derived from this): lending rates of banks have not come down in tandem with reduction in the liquidity reserve ratio rate; rather the rates have gone up.

Option C doesn't counter either statement 2 or statement 3 (since we limit ourselves to recent rate cuts). But there is an assumption needed to generalize statement 2 (premise to 1) to the conclusion (statement 1). See below argument:

Even if the banks have not passed on the benefit of recent rate cuts to the consumers, we can't say that banks are favoring profits over customer welfare because banks still invest a considerable amount of money in improving the banking experience of their customers.

Does this argument not make sense at all? If not, then option C is neutral. If it makes some sense, then option C is a weak "weakener".

Rajat - Your views are welcome.

Warm Regards,
CJ

Archit143 · Answer

In your explanation of option choice C....you have very well pointed out the ambuity in the usage of STILL.
The use of word "Many banks" at start of the sentence made me to dump the option as the bank regulators are talking of the BANKS i.e. all the banks and when most banks are mentioned that means still there a few banks not providing customer services....hence the option can be dumped

ChiranjeevSingh · Answer

Hi,
We can't really dump option C just because it talks about "Many banks". Lets suppose we keep the other options same and change option C as:
"Many banks have recently been investing considerable amounts of money in improving the banking experience of their customers"

Now, option C becomes as strong as option B; even marginally better than option B. Why? Because it directly attacks the conclusion that banks are favoring profits over consumer welfare. While option B also counters the conclusion by highlighting the inability of banks to pass on the benefits (sort of defensive way to argue in favor of banks), option C goes on offensive and directly counters the argument by saying that banks have indeed passed on the benefits of rate cuts by investing to improve banking experience of their customers.

Now, your point that the banking regulator is talking of all banks while option C talks of many banks.

If you read it minutely, you'll figure out that the apex banking regulator is not talking of all the banks, it is talking of banks in general. Suppose if it were saying that all banks are favoring profits over customer welfare. In that case, an argument "there is a bank X, which has recently been investing a lot of money in improving banking experience to its customers' would have been enough. Since, this statement effectively falsifies the stand of the regulator that no bank is favoring customer welfare.

However, in the given situation, the bank is talking about banks in general. Thus, we can't argue by talking of only one bank. We need to talk about 'some banks' or 'many banks' or 'almost all banks' or 'all banks'. Obviously, if we counter by saying that all banks have started investing...., the argument would be the strongest; however, even if we talk about 'many banks', our argument would still be very strong.

Consider this response: The regulators opinion that banks are favoring profits over customer welfare is unfounded, as is clear from the fact that many banks have recently been investing a lot of money to improve banking experience of their customers.

Don't you think the above counter-argument is strong?

mvictor · Answer

got to B by POE.

smth similar to solve paradox questions.
why the banks have not decreased rates although the liquidity ratio decreased?
hm, smth else must be here, and B perfectly fits in.

komalpatna · Answer

Amoung option A, B, C all are strengthening question stem question, but issues with these options are
(A) Banks are in essence businesses so their primary motive should be to make profit: never discussed here about banks are only for profit here. 
(B) The costs of running a bank have gone up considerably in recent times: may be correct 
(C) Many banks still invest a considerable amount of money in improving the banking experience of their customers: With recent cut down of interest rate, does banks started investing in banking experience now or before some years back.

Bunuel · Answer

Official Explanation

Answer: B

The argument assumes that the only reason banks have not reduced lending rates is because they are trying to make more profits. But what if the costs of banks have gone up which is why they are not passing on these benefits to the end customer? B states this and is the correct answer.

(A) This in fact strengthens the position taken by the apex banking regulator.

(B) The correct answer.

(C) This is a separate point and has no connection with the cause and effect link mentioned in the argument.

(D) This is an irrelevant fact.

(E) This again doesn’t weaken the argument.

VerbalBot · Answer

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The apex banking regulator in the country has stated that

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The apex banking regulator in the country has stated that

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