An episode when depositors,spurred by news or rumours of the imminent bankruptcy of a particular bank,rush to withdraw their deposits from that bank is called a(n)
A) open-market withdrawal.
B) open-market sale.
C) banking panic.
D) bank run.
E) reserve requirement crisis.

Question

Quizplus · Accepted Answer

A bank run is a situation where depositors panic and rush to withdraw their deposits from a particular bank due to news or rumors of the bank's imminent bankruptcy. This creates a liquidity crisis for the bank as it may not have enough cash or liquid assets to meet the demands of all depositors simultaneously. This can lead to the bank actually defaulting on its obligations, causing further panic and distress in the financial system.

An Episode When Depositors,spurred by News or Rumours of the Imminent