Related to the Solved Problem] Economist Laurence Kotlikoff of Boston University

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Related to the Solved Problem] Economist Laurence Kotlikoff of Boston University has proposed that the banking system be reformed so that all banks would become "limited purpose banks. " As he explains Banks) would simply function as middlemen They would never own financial assets or borrow to invest in anything (Limited purpose bankingl effectively provides for 100 percent reserve requirements on checking accounts. This eliminates any need for FDIC insurance and any possibility of traditional bank runs Source Laurence J. Koilkoff, Jimmy Stewart is Dead, Hoboken, NJ: John Wiley&Sons;, 2010, pp 123-124. 132 why would 100% reserve requirements on checking accounts eliminate the need for FDIC insurance? O A. a bank failed, it would have 100% of the deposits on hand, so there would be no possibilty of anyone losing their deposits O B. Even if there were 100% reserve requirements on checking accounts. FDIC insurance would stil be necessary to protect C. If a bank faled, n would have 100% of the deposits on hand, so there would be no possiblity of anyone losing thoir deposit Therefore, the existence of FDIC is compulsory members with very large balances Therefore, there would be no need for FDIC insurance would become a frequent occurrence, as members would be fearful of their accounts being unprotected by the government 0 D. If a bank would have 100% reserve requirements on checking accounts and FDIC insurance was eliminated bank runs Would depostors need to fear losing money if their bank faled? to select ur O Type here to search

Explanation / Answer

PART-1) Why would 100% reserve requirements on checking accounts eliminate the need for FDIC insurance?

Solution: If a bank failed, it would have 100% of the deposits on hand, so there would be no possibility of anyone losing their deposits. Therefore, there would be no need for FDIC insurance

Explanation: The depositors need not to fear losing money and do not need for Federal Deposit Insurance Corp (FDIC) if their bank failed because have 100% of the deposits on hand, thus there would be no possibility of anyone losing their deposits.

PART-2) Would depositors need to fear losing money if their bank failed

Solution: NO

Explanation: If a bank failed, it would have 100% of the deposits on hand, thus depositors need not to fear losing money if their bank failed

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