Two mid-sized banks are experiencing severe deposit outflows during a regional economic crisis: Bank Alpha: Assets: $2.0 billion Liabilities: $1.8 billion Problem: 80% of assets are illiquid long-term loans Bank Beta: Assets: $1.5 billion Liabilities: $1.8 billion Problem: Major loan losses from regional downturn, but adequate liquidity of remaining assets Both banks have exhausted private funding sources and approached regulators for assistance. Assuming both banks are systemically important to their local communities, which regulatory response is MOST appropriate? Question 20 Answer a. Merge both banks with stronger institutions using regulatory powers b. Provide liquidity support to Beta while requiring Alpha to raise capital or face closure c. Require both banks to raise additional capital before providing any assistance d. Close both banks immediately and transfer deposits to healthy institutions e. Provide emergency liquidity support to both banks f. Provide liquidity support to Alpha while requiring Beta to raise capital or face closure