Negative externalities exist in the deposit-taking sector when

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All of the choices listed create negative externalities in the deposit-taking sector. A fear of insolvency can lead to bank runs, which affects not just the bank experiencing the runs but also healthy banks in the sector. Lending activity could be constrained due to concerns over the stability of the sector, and delays in disbursements from insolvent DTIs can lead to further disruptions. Banks that are healthy can also be impacted when other banks near insolvency, further reinforcing the negative externalities in the sector.

Negative Externalities Exist in the Deposit-Taking Sector When