Reserves, Runs and Rate Caps: teacher key

How Banks Work, grade 11 edition, written for 11th grade. Banks lend out much of their deposits. The story runs from the panic of 1907 through the 1933 banking act to deposit insurance as of November 2026.

Read the book. Print this page for the key.

Questions and answers

1. As of October 2019, what share of UK money did notes and coins make up?
   • About 3 percent (answer)
   • About 80 percent
   • About 25 percent
2. What did Class C banks have happen in 1933?
   • They reopened after reorganization
   • They reopened at once as solvent
   • They were not allowed to reopen (answer)
3. Why were trust companies as open to runs as banks?
   • Their deposit rates were capped by law
   • Deposits could be demanded in cash (answer)
   • Their deposits belonged to the owners
4. What happened to savings and loans' deposit rates in the 1980s?
   • The Fed raised them each year
   • Banks let savers set them
   • The government capped them (answer)
5. If a bank is insolvent, what is true of it?
   • It lends only to credit unions
   • It holds extra reserves at the Fed
   • It cannot pay what it owes (answer)

Words

• solvent: able to pay
• insolvent: unable to pay
• underwrite: back a sale
• reserves: money held back
• default: fail to repay
• collateral: pledged property