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You are the lender of last resort and an institution approaches you for a loan. You assess that the institution has $200 million in assets,

You are the lender of last resort and an institution approaches you for a loan. You assess that the institution has $200 million in assets, mostly in long-term loans, and $400 million in liabilities. The institution is experiencing usually high withdrawal rates on its demand deposits and is requesting a loan to tide it over. Would you grant the loan?

No.
Yes.

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