Bank depositors in the United States are all fi nancially
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 fi nancial incentive to fi nd 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 signifi cant 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 signifi cant
factor in bank failures.
(E) Potential depositors are able to determine which
banks are secure against failure.
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