Question

If people are standing in line to get their deposits cashed from a bank because they fear the bank has a liquidity problem, this is an example of _______.

a. A bank run
b. A bank robbery
c. A bank challenge
d. All of the above

Answer 1

A bank run occurs when depositors rush to the bank to withdraw their money due to rumors of a bank's financial instability.

Step-by-step explanation:

A bank run occurs when there are rumors (possibly true, possibly false) that a bank is at financial risk of having negative net worth. As a result, depositors rush to the bank to withdraw their money and put it someplace safer. Even false rumors, if they cause a bank run, can force a healthy bank to lose its deposits and be forced to close. Deposit insurance guarantees bank depositors that, even if the bank has negative net worth, their deposits will be protected.

Therefore, the correct answer is a. A bank run.