A rumor starts that says a bank has suffered significant losses and may not be able to honor its promises to depositors. This causes most of the depositors to line up in front of the bank the next morning wanting to withdraw their deposits. This is an example of:

Question

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The scenario describes a situation where depositors are worried about their ability to withdraw their funds from the bank, which is a classic example of liquidity risk. This type of risk arises when an institution does not have enough liquid assets to meet the demands of its depositors or other creditors. In this case, the rumor has caused a "run on the bank," which could put the bank at risk of defaulting on its obligations.

A Rumor Starts That Says a Bank Has Suffered Significant