Diamond and Dybvig show that government deposit insurance can eliminate the bank-run equilibrium. The model produces the elegant result that this insurance costs nothing in equilibrium. Why?

In Exhibit 2, Panel E shows Cornerstone Regional’s equity-to-assets ratio declined from 9.8% to 5.2% while Continental National’s ratio remained stable at approximately 10.2%-10.5%. What does this divergence indicate about the nature of this crisis?

The Prompt Corrective Action (PCA) framework establishes mandatory regulatory interventions tied to capital ratio triggers. Under PCA, what happens when a bank’s capital ratio falls below the “critically undercapitalized” threshold?

In Exhibit 2, Panel B shows that Continental National’s deposits grew by approximately 11% during the same period that Cornerstone Regional’s deposits fell by nearly 20%. What phenomenon does this pattern most likely reflect?

A large bank processes 500,000 small business loan applications per year using an automated credit scoring algorithm. A community bank processes 200 applications per year using personal interviews and local knowledge. Which statement is correct?

If Maple Grove Community Bank were to replace $50,000K of its Treasury securities holdings with $50,000K of new C&I loans, what would be the net effect on its total liquidity creation?

A FinTech lender originates mortgage loans and immediately sells them to institutional investors, retaining only a servicing fee. Under the Distinct Value Model, why does this originate-to-distribute model generate less distinct value than a traditional bank holding the same loans? (select all that apply)

Which of the following is NOT an assumption of the Diamond-Dybvig model?

In the Distinct Value Model, risk management is treated as a key input that enables banks to produce outputs safely and reliably, rather than as a final output of banking operations.

Using Exhibit 3, calculate the approximate change in Cornerstone Regional’s on-balance-sheet liquidity creation (asset side + liability side only, excluding OBS) between Pre-Crisis Q1Y1 and Peak Crisis Q3Y2. Which direction did on-balance-sheet LC move, and what was the primary driver?