Banks that practice narrow banking match the maturity of their investments with the term of the deposits that they collect from the public. In other words, narrow banks take short$-$maturity deposits and invest in assets that carry a low level of risk and are also of short$-$term maturity, like short$-$term government debt.

Suppose that all FDIC$-$insured banks decide to adopt narrow banking.

How would narrow banking reduce the level of risk in the banking system?

A$.$ It would not change the level of risk in the banking system because bank runs would still occur for irrational reasons.

B$.$ It would reduce the level of risk in the banking system by making banks more profitable.

C$.$ It would increase risk in the banking system by making it more difficult for banks to build up stockholders' equity.

D$.$ It would reduce risk in the banking system by reducing the likelihood of bank runs and liquidity problems for banks.