Financial intermediation can break down as a result of:
A) the government's granting property rights.
B) free adjustments of interest rates in the loanable funds market.
C) bank panics.
D) a high saving rate.

Question

Quizplus · Accepted Answer

Financial intermediation relies on banks being able to attract deposits from savers and lend them out to borrowers. If there is a bank panic, depositors may withdraw their funds en masse, leading to a sharp reduction in the bank's reserves and ability to make loans. This can cause financial intermediation to break down, leading to a credit crunch and economic contraction. The other options (A, B, and D) are not directly related to financial intermediation breakdown.

Financial Intermediation Can Break Down as a Result Of