Bank runs:
A)occur when the discount rate rises
B)occur when large numbers of depositors all try to withdraw their deposits at the same time
C)are only a problem in a 100 per cent reserve banking system
D)none of the above

Question

Quizplus · Accepted Answer

Bank runs occur when large numbers of depositors all try to withdraw their deposits at the same time, causing a shortage of reserves and potentially leading to a bank's insolvency. The discount rate, which is the interest rate at which banks can borrow from the central bank, may affect a bank's ability to meet the demand for withdrawals but is not the primary cause of bank runs. Bank runs can occur in both fractional reserve and 100 percent reserve banking systems.

Bank Runs