Question

Bank runs are unlikely when:

- the bank deposits are insured.

- bank capital standards are implemented

Answer 1

Answer A. The bank deposit are insured.

A run on bank occur when large number depositors fear that their bank will be unable to repay their deposits in time so they try to withdraw their money immediately and as we know that bank does not kept full amount of deposits with themselves as they lend some amount with that money itself and if all the depositors come together then it leads to the situation of bank run.So to prevent this the bank deposits are insured.

When bank deposits are insured there is very less chance of people withdrawing money from their bank as they are insured that in the case of insolvency of bank they will be repaid.