The fear that liquidity problems at one bank may cause depositors to worry about the solvency of other banks is called the disease effect.

Question

Quizplus · Accepted Answer

The correct term for this phenomenon is the "contagion effect," not the "disease effect." It refers to the fear that financial troubles in one institution can spread to others and potentially lead to a broader financial crisis.

The Fear That Liquidity Problems at One Bank May Cause