The U.S. banking system has experienced significant changes from the traditional

Question

The U.S. banking system has experienced significant changes from the traditional 1950’s-era view of banking (where banks are intermediaries that channel funds from households to businesses). Which of the following factors did NOT play a role in this evolution of banking?

a. The rise of finance companies
b. A steady decline in households’ demand for mortgages.
c.“Death of deposits” -- money market mutual funds began to offer depositors interest on their deposits, and became competitors of banks.
d.“Death of loans”--top corporate customers have access to open market credit, particularly commercial paper, where they can borrow more cheaply than banks.

Explanation / Answer

Solution: “Death of loans”--top corporate customers have access to open market credit, particularly commercial paper, where they can borrow more cheaply than banks.

Explanation: Banks cannot lend below the benchmark lending rates, thus the corporate customers with good ratings have preferred to meet short-term working capital requirements through commercial papers which is lower than the bank rates.

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