The vulnerability of the fractional banking system is due to
A)the volatility of interest rates
B)the nature of demand deposits
C)the illiquidity of loans
D)both b and c
E)a, b, and c are all correct

Question

Quizplus · Accepted Answer

The fractional banking system is vulnerable due to the nature of demand deposits, which can be withdrawn at any time, and the illiquidity of loans, which cannot be quickly converted into cash. Interest rates can also contribute to vulnerability, but they are not the primary factor.

The Vulnerability of the Fractional Banking System Is Due to