A bank run occurs when:
A) a large amount of loans held by a bank default at once.
B) a bank posts a strong series of financial statements.
C) a bank's reserves are not enough to satisfy all withdrawal demands.
D) All of these can cause a bank run.

Question

Quizplus · Accepted Answer

A bank run occurs when there is a sudden increase in withdrawal demands from depositors, but the bank's reserves are not enough to meet these demands. This often happens due to a sudden loss of confidence in the bank's ability to meet its obligations, which can be triggered by a number of factors such as rumors about the bank's solvency or a high-profile bankruptcy of another financial institution. A bank run can then create a vicious cycle where more and more depositors withdraw their funds, leading to further depletion of the bank's reserves and ultimately, its failure.

A Bank Run Occurs When