A banking crisis occurs:
A)whenever there is an asset bubble.
B)if shadow banks begin to accept deposits.
C)when banks engage in maturity transformation by accepting short-term deposits and converting them into long-term loans or investments.
D)when a large part of the depository banking sector or the shadow banking sector fails or threatens to fail.

Question

Quizplus · Accepted Answer

A banking crisis occurs when a large part of the depository banking sector or the shadow banking sector fails or threatens to fail. This can lead to a loss of confidence in the banking system, causing bank runs and ultimately leading to a financial crisis. While asset bubbles and maturity transformation can also contribute to a banking crisis, they are not the sole causes. Shadow banks accepting deposits is also a factor, but not as significant as the failure or near-failure of a large portion of the banking sector.

A Banking Crisis Occurs