Hang asked in Social ScienceEconomics · 1 month ago

Neeeeeeeeeeeeeeeeeeeeeeeeeed help! what does "affects the banks'......not fail" mean in the context?

an increase in the banks’ external cost of funding, driven by an increase in reserve requirement, affects the banks’ bottom line only in those states of the world in which the bank actually repays its debt, that is, when it does not fail.

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  • Oiy
    Lv 4
    1 month ago
    Best Answer

    The bank will not collapse if it can still repay its debts. In fact, it will collapse due to the bank-run, so confidence.

  • OK, so this

    - an increase in the banks’ external cost of funding, driven by an increase in reserve requirement

    affects the banks' bottom line

    but

    only in those nations in which banks are required to repay their debt

    and

    only if the bank has not failed (has not closed) in the meantime

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