Question

How will applying high deposit insurance premiums to banks holding risky assets be beneficial for the...

How will applying high deposit insurance premiums to banks holding risky assets be beneficial for the economy?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

High deposit insurance premium to bank holding risky assets would be beneficial for the economy because the amount of deposit insurance premium determines the overall risk.

By increasing amount of deposit insurance premium for the banks, It would be helpful in minimization of the moral hazards and adverse selection issues in the economy.

Higher deposit insurance premium measures the risk as it puts the banks in a check on their risk so it helps in controlling the overall risk while landing, this also reduces the overall risky Assets of the bank and untimely benefits.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Creation of the FDIC encouraged reluctant depositors to put their money into the banking system. How...
Creation of the FDIC encouraged reluctant depositors to put their money into the banking system. How could higher deposit insurance premiums for banks with riskier assets benefit the economy?
For a $1,200 average collected balance demand deposit, the deposit insurance premiums are $0.80, and interest...
For a $1,200 average collected balance demand deposit, the deposit insurance premiums are $0.80, and interest expense, administrative costs and service charges are $10.8, $45.20, and $23.50. What is RDD, keeping reserve requirement as 15%?
Some economists have advocated replacing government deposit insurance with 100-percent reserve banking. Under this plan, banks...
Some economists have advocated replacing government deposit insurance with 100-percent reserve banking. Under this plan, banks would hold all deposits as reserves. Deposit insurance would no longer be necessary because banks would always have the reserves to meet customer withdrawals. a. What would happen to the money supply (defined as currency and bank deposits) in the transition from fractional reserve to 100-percent reserve, if this plan were implemented, holding other factors constant? b. What will be the value of the...
Can a taxpayer take a deduction for premiums paid for health insurance? How do reimbursements from...
Can a taxpayer take a deduction for premiums paid for health insurance? How do reimbursements from health insurance policies affect the amount of the medical deduction? What happens if an insurance reimbursement for medical expenses is received in a subsequent tax year?
How can deposit insurance reduce “bank runs”?
How can deposit insurance reduce “bank runs”?
1. Discuss how the deposit contract makes banks susceptible to runs, and critically evaluate potential solutions...
1. Discuss how the deposit contract makes banks susceptible to runs, and critically evaluate potential solutions to the problematic features of deposit contracts
How can banks increase the amount of loan funds available for private lending? A Selling government...
How can banks increase the amount of loan funds available for private lending? A Selling government securities to dealers and federal reserve system B buying gov. Securities from dealers and the fed reserve system C by buying stocks, property and other assets to hold on behalf of the banks D by holding 100% of customers deposits in bank volts
5. Below are balance sheets for two different banks. Answer the following questions about this: High...
5. Below are balance sheets for two different banks. Answer the following questions about this: High Capital Bank Assets Liabilities Reserves. $10 million Deposits $90 million Loans $90 million Bank capital $10 million Low Capital Bank Assets Liabilities Reserves $10 million Deposits $96 million Loans $90 million Bank capital $ 4 million (a) If current profits are $800,000 for each bank, what is the Return on Equity (ROE) for each bank? (b) If the required reserve ratio is currently 10%,...
So, how do banks “create” money? You’ll probably be surprised to learn that much of the...
So, how do banks “create” money? You’ll probably be surprised to learn that much of the cash in the money supply is somewhat illusory, “created” by the ability of banks to lend their deposits to other borrowers. Read the scenario below to understand how the process functions. How Does It Work: You’re going to start with $100 worth of cash money. You’ve decided to give that $100 to Ralph as a “gift” and suggest that he deposit it in the...
7. How does a NOW account differ from a demand deposit? 10. What are the major...
7. How does a NOW account differ from a demand deposit? 10. What are the major categories of off-balance-sheet activities? 15. A security analyst calculates the following ratios for two banks. How should the analyst evaluate the financial health of the two banks? 20. How does a bank’s asset size affect its financial ratios? Bank A Bank B Return on equity 22% 24% Return on assets 2% 1.5% Equity multiplier 11× 16× Profit margin 15% 14% Asset utilization 13% 11%...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT