A significant amount of legislation passed in the 20th century sought to reduce the risk of future economic events like the liquidity crisis experienced by banks during the Panic of 1907. Which of the following policies would increase the risk of a liquidity crisis?(1 point)

Question

Responses

Banks are required to store a smaller percentage of depositor funds in their vaults.
Banks are required to store a smaller percentage of depositor funds in their vaults.

Banks in need of cash are offered low-interest loans from the Federal Reserve.
Banks in need of cash are offered low-interest loans from the Federal Reserve.

Banks are required to store a larger percentage of depositor funds in their vaults.
Banks are required to store a larger percentage of depositor funds in their vaults.

Banks in need of cash are offered low-interest loans from other banks.
Banks in need of cash are offered low-interest loans from other banks.
Skip to navigation
page 18 of 18

Answer 1

The policy that would increase the risk of a liquidity crisis is:

Banks are required to store a smaller percentage of depositor funds in their vaults.

When banks are required to store a smaller percentage of depositor funds, they have less liquid assets on hand to meet withdrawal demands, which can increase the risk of a liquidity crisis.