One way to enhance the stability of the banking system is to:
A) Require higher bank capitalization or net worth
B) Increase the federal funds rate
C) Reduce the required-reserve ratio
D) Require more leveraging by banks

Question

Quizplus · Accepted Answer

By requiring higher bank capitalization or net worth, banks have more funds available to absorb potential losses and can be more resilient in the face of financial stress or crises. This can enhance the stability of the banking system and mitigate the risk of bank failures or systemic collapse. Increasing the federal funds rate or requiring more leveraging by banks may have unintended consequences and may not necessarily improve stability, while reducing the required-reserve ratio could lead to banks having less liquidity and potentially exacerbate instability.

One Way to Enhance the Stability of the Banking System