A bank run can break a bank because:

Question

Quizplus · Accepted Answer

A bank run occurs when depositors rush to withdraw their deposits from a bank, causing a liquidity crisis. Banks typically keep a portion of their deposits in reserves and invest the rest in loans or other assets. However, many of these assets may not be easily converted into cash without significant losses. Thus, if too many depositors try to withdraw their money at the same time, the bank may not have enough cash on hand to meet these demands, and it may become insolvent. This is why banks typically rely on the central bank or other lenders of last resort to provide them with emergency liquidity during times of financial stress.

A Bank Run Can Break a Bank Because