Question 93

The loss of deposits from the banking system which restricts the amount of lendable funds

Disintermediation refers to the phenomenon where deposits are withdrawn from banks, leading to a reduction in the available funds that banks can lend. This process can significantly affect the banking system's ability to facilitate loans and credit.

A) The process of printing money and institutional checks by the Federal Reserve System

This option is incorrect as it describes monetary policy actions taken by the Federal Reserve, which involve the creation of money and control of the money supply, rather than the withdrawal of deposits from banks.

B) The process of securing deposit for London Interbank Offered Rate transfers

This choice is also incorrect. It refers to securing deposits related to LIBOR, which is unrelated to disintermediation, as it does not involve the withdrawal of funds from the banking system.

C) The loss of deposits from the banking system which restricts the amount of lendable funds

This option accurately defines disintermediation. When deposits are removed from banks, it leads to a decrease in the amount of capital available for lending, which can have broader implications for the economy.

D) A new class of residential mortgages offered to borrowers with less-than-stellar credit records

This choice is incorrect as it pertains to a specific type of mortgage product rather than the concept of disintermediation. It does not relate to the withdrawal of funds from the banking system.

Conclusion

The correct answer, option C, precisely captures the essence of disintermediation by highlighting the loss of deposits and its impact on lending capacity. Other options fail to address this core concept, as they either discuss unrelated financial processes or products. Thus, option C remains the definitive description of disintermediation.