Question

Bank panics:
a.occur frequently in fractional reserve banking systems.
b.are a risk of fractional reserve banking, but are unlikely when banks are highly regulated and lend prudently.
c.cannot occur in a fractional reserve banking system.
d.occur more frequently when the monetary system is backed by gold.

Answer 1

The answer to this question is letter B.

Bank panics are a risk of fractional reserve banking but are unlikely when banks are highly regulated and lend prudently. Bank panic is a situation where a financial crisia occurs when depositors will try to convert their deposits into cash or withdraw their deposit in the bank. In order for the banks to prevent this kind of crisis, banks will have to keep a higher reserves and commercial banks should be kept regulated always.