You hear a rumor that your bank is going to collapse. You rush to the bank, along with many other customers, to withdraw your savings. This scenario demonstrates:

Question

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This scenario demonstrates the interdependence principle, which refers to the fact that the soundness of one financial institution can affect the soundness of other institutions due to interconnections in the financial system. The rush to withdraw savings is a self-fulfilling prophecy that can lead to a bank run and ultimately the collapse of the bank. This is why the banking system is heavily regulated to avoid systemic risk. A, B, and D do not accurately describe the scenario.

You Hear a Rumor That Your Bank Is Going to Collapse