Bank insolvency is more likely to occur during a financial crisis because:
A) wholesale funding dries up.
B) most of the assets become toxic.
C) banks stop lending to each other.
D) All of the above.
E) None of the above.

Question

Quizplus · Accepted Answer

During a financial crisis, wholesale funding dries up as investors become risk-averse, causing banks to struggle to fund their activities. As a result, banks may have to rely heavily on their existing assets, which may become toxic due to defaults and loan losses. Banks may also stop lending to each other due to the high level of uncertainty and risks, further exacerbating their financial difficulties. All of these factors increase the likelihood of bank insolvency during a financial crisis.

Bank Insolvency Is More Likely to Occur During a Financial