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Which action can a supervisor take when a bank is in serious financial trouble?
AArrange for it to merge with a stronger institution
BOrder its depositors to withdraw their money at once
CSell its branches to a nondepository institution
DTransfer its charter to the central bank for a year
Answer & Solution
Correct answer: A. Arrange for it to merge with a stronger institution
1. When examiners conclude a bank has serious financial problems, several actions are open to the supervisor.
2. It can lend money to the bank or buy loans from it, and it can provide extra equity capital.
3. It can require new management practices or replace the managers outright.
4. It can also recommend that the bank merge with a stronger bank.
5. Ordering depositors to withdraw would trigger the very run the supervisor is trying to prevent.
_Source: OpenStax Introduction to Business (CC BY 4.0), Ch 15 "Understanding Money and Financial Institutions", section 15.4 Insuring Bank Deposits_
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