Which of the following tradeoffs impact the likelihood of a bank's failure?
A)The more competitive the banking environment, the more liquid the bank will be
B)The greater the regulation from government the more likely the bank will fail
C)The more profitable the bank, the less liquid the bank will be and the more likely it will fail
D)The larger the bank in asset size the more likely it will fail

Question

Quizplus · Accepted Answer

When a bank aims for higher profits, it may engage in risky investments or lending practices, which can lead to a decrease in its liquidity and increase the likelihood of failure. Therefore, the tradeoff between profitability and liquidity has a significant impact on a bank's ability to survive. The other choices are not accurate; a more competitive environment can potentially lead to increased risk-taking, but it can also encourage better management and a focus on efficiency, which may improve a bank's chances of success. Greater government regulation can provide stability and reduce risk-taking, making failure less likely. The size of a bank is not a straightforward indicator of whether it will fail, as there are many large banks that are successful and many small banks that have failed.

Which of the Following Tradeoffs Impact the Likelihood of a Bank's