A bank run can result in bank failure because banks keep only a small fraction of their depositors' funds in the bank vault and are therefore unable to meet their customers' demands for their money.

Question

Quizplus · Accepted Answer

Banks typically keep only a fraction of their depositors' funds in the bank vault, as the rest is used to make loans or invest in other assets. If depositors demand their money back all at once (i.e. a bank run), the bank may not have enough cash on hand to meet the demand and may become insolvent, leading to bank failure.

A Bank Run Can Result in Bank Failure Because Banks