Bank depositors and bank failure

bettylll wrote:Bank depositors in the United States are all financially protected against bank failure because the government insures all individuals' bank deposits. An economist argues that this insurance is partly responsible for the high rate of bank failures, since it removes from depositors any financial incentive to find out whether the bank that holds their money is secure against failure. If depositors were more selective, then banks would need to be secure in order to compete for depositors' money.

Which of the following, if true, most seriously weakens the economist's argument?

(A) Before the government started to insure depositors against bank failure, there was a lower rate of bank failure than there is now.
(B) When the government did not insure deposits, frequent bank failures occurred as a result of depositors' fears of losing money in bank failures.
(C) Surveys show that a significant proportion of depositors are aware that their deposits are insured by the government.
(D) There is an upper limit on the amount of an individual's deposit that the government will insure, but very few individuals' deposits exceed this limit.
(E) The security of a bank against failure depends on the percentage of its assets that are loaned out and also on how much risk its loans involve.

[spoiler]OA: B.
I could eliminate option ACD, but got stuck between B and E. I finally chose E because it appeared to me the economist's reasoning was that gov insurance => depositor have no financial incentive =>depositors less selective => increase bank failures. Then what I was thinking was that if I had another premise stating that bank failures were caused by other factors rather than gov insurance, the economist's argument would certainly be weakened. Therefore, I went for E, which talked about the security of a bank relied on such factors as "the percentage of its assets that are loaned out and also on how much risk its loans involve" instead of gov insurance. But obviously this kind of think was wrong but where? Please cast light on this.[/spoiler]
Thanks~

Ozlemg wrote:

bettylll wrote:Bank depositors in the United States are all financially protected against bank failure because the government insures all individuals' bank deposits. An economist argues that this insurance is partly responsible for the high rate of bank failures, since it removes from depositors any financial incentive to find out whether the bank that holds their money is secure against failure. If depositors were more selective, then banks would need to be secure in order to compete for depositors' money.

Which of the following, if true, most seriously weakens the economist's argument?

(A) Before the government started to insure depositors against bank failure, there was a lower rate of bank failure than there is now.
(B) When the government did not insure deposits, frequent bank failures occurred as a result of depositors' fears of losing money in bank failures.
(C) Surveys show that a significant proportion of depositors are aware that their deposits are insured by the government.
(D) There is an upper limit on the amount of an individual's deposit that the government will insure, but very few individuals' deposits exceed this limit.
(E) The security of a bank against failure depends on the percentage of its assets that are loaned out and also on how much risk its loans involve.

[spoiler]OA: B.
I could eliminate option ACD, but got stuck between B and E. I finally chose E because it appeared to me the economist's reasoning was that gov insurance => depositor have no financial incentive =>depositors less selective => increase bank failures. Then what I was thinking was that if I had another premise stating that bank failures were caused by other factors rather than gov insurance, the economist's argument would certainly be weakened. Therefore, I went for E, which talked about the security of a bank relied on such factors as "the percentage of its assets that are loaned out and also on how much risk its loans involve" instead of gov insurance. But obviously this kind of think was wrong but where? Please cast light on this.[/spoiler]
Thanks~

Hi

B is highly welcoming for a correct answer but in other forums E is stated as the correct answer? Could you check your source once more pls?

Why E is not correct for me--> In the argument, the economist argues that government's insurance is partly responsible for the high rate of bank failures," So he suggests that there may be other factors that cause the increased failure rate. Hence, the statement E cannot be the right answer because presenting a different reason that results in the rise of bank failure rate does nothing to weaken the argument.It can be any reason!

On contrary, B says, If there was no insurance, there were still bank failures,
Argument says, If there were no insurance, consumers could be selective and there would not be any failure. Showing that this is not true, argument is weakened!

Cheers!