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    Question

    What are banks accountable for?

    Read the following passage carefully and choose the most appropriate answer to the question out of the four alternatives.   Any kind of accounting chicanery that makes the books look rosy will come at the cost of the accuracy with which banks reflect their financial health. Banks, which are supposed to be good at assessing not just debtors’ credibility but also the broader trends in the economy and the financial markets, cannot feign surprise at a rise and fall in bond yields. As Mr. Acharya has pointed out, banks understand the impact of interest rate movements and the risks of bond investments, and they perhaps choose to ignore this thanks to a “heads I win, tails the regulator dispenses” mindset. Just as banks need to be held accountable for their lending decisions and their advances, treasury operations and bond investments also need accountability and risk management systems. 
    A Interest rate movements Correct Answer Incorrect Answer
    B High interest rates Correct Answer Incorrect Answer
    C Regulator dispenses Correct Answer Incorrect Answer
    D Their loan giving decisions Correct Answer Incorrect Answer

    Solution

    The correct answer is D

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