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．
            

45．The economist's argument makes which of the following assumptions?

(A)
Bank failures are caused when big borrowers default on loan repayments．

(B)
A significant proportion of depositors maintain accounts at several different banks．

(C)
The more a depositor has to deposit，the more careful he or she tends to be in selecting a bank.

(D)
The difference in the interest rates paid to depositors by different banks is not a significant factor in bank failures．

(E)
Potential depositors are able to determine which banks are secure against failure．

Situation An economist contends that the high rate of bank failures can partly be blamed on federal insurance of bank deposits．The insurance removes any financial incentive for depositors to seek those banks that are the most secure against failure．In the absence of more selective depositors，the banks need not be secure to compete for deposits．

Reasoning What assumption underlies the economist’s argument? The economist argues that banks would have to be more secure in a competitive environment with more discriminating depositors. The economist encourages potential depositors to be more selective in choosing a bank and therefore must believe that they know what makes a bank secure against failure．Only with this knowledge could depositors choose the best bank．

A
This statement explains how a bank failure may occur, but it is not a necessary assumption for the economist’ s argument about how depositors choose a bank．

B
The argument never discusses multiple accounts，so this statement cannot be assumed．

C
The economist argues that depositors are not careful in selecting banks；this statement contradicts that position．at least for some depositors，so it cannot possibly be assumed．

D
In arguing about choosing banks，the economist mentions nothing about the relation of interest rates to bank failures，so this statement is not assumed．

E
Correct．This statement properly identifies the economist’ s underlying assumption that potential depositors are able to determine which banks are more secure．