The underlying problem that may lead to runs on solvent banks is

Question

Quizplus · Accepted Answer

Private information about banks' loan portfolios can create uncertainty among the public about the bank's ability to repay deposits, leading to a "run" on the bank where many depositors withdraw their funds at the same time. If depositors believe that the bank holds a large amount of non-performing loans or has excessive exposure to risky assets, they may withdraw their funds in anticipation of the bank's potential failure. This can create a snowball effect as more depositors withdraw their funds, further weakening the bank's ability to meet deposit demand and potentially leading to insolvency.

The Underlying Problem That May Lead to Runs on Solvent