Rumors of a bank failing, even if not true, can become a self-fulfilling prophecy because:
A) customers will not want to obtain loans from this bank.
B) equity investors will not be able to sell the bank's stock.
C) regulators will scrutinize the bank heavily looking for something wrong.
D) depositors will rush to the bank to withdraw their deposits and the bank under normal situations would not have sufficient liquid assets on hand.

Question

Quizplus · Accepted Answer

If customers rush to withdraw their deposits, the bank may not have enough liquid assets on hand to meet these demands. This can lead to a bank run and potentially cause the bank to fail, even if it was financially sound before the rumors started. This is why rumors of a bank failing can become a self-fulfilling prophecy.

Rumors of a Bank Failing, Even If Not True, Can