The possibility that the failure of one bank can hasten the failure of other banks is called the

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The contagion effect refers to the risk that the failure of one bank can spread to other banks, either through direct linkages (e.g. interbank lending) or through loss of confidence in the banking system as a whole. This can lead to a domino effect where multiple banks fail in succession. The bank run effect refers to the risk that depositors withdraw their funds from a bank due to concerns about its solvency, which can exacerbate the bank's financial difficulties. The moral hazard effect refers to the risk that banks may take on excessive risk knowing that they will be bailed out by the government in the event of a crisis. The adverse selection effect refers to the risk that the riskiest borrowers are the most likely to seek loans, leading to a deterioration in the quality of the bank's loan portfolio.

The Possibility That the Failure of One Bank Can Hasten