A bank run can break a bank because:

Question

Quizplus · Accepted Answer

A bank run occurs when large numbers of depositors withdraw their money from the bank due to concerns about the bank's solvency. This creates a liquidity crisis for the bank because it doesn't have enough cash on hand to satisfy all the withdrawals. To meet the demand for cash, the bank may have to sell illiquid loans at a loss, which can deplete its capital and make it more vulnerable to bankruptcy. Therefore, banks cannot quickly convert illiquid loans to liquid assets without facing a large financial loss, which can break a bank.

A Bank Run Can Break a Bank Because