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Which of the following with regard to the term ‘bank run’ is correct?
- a)The net balance of money a bank has in its chest at the end of the day’s business
- b)The ratio of the bank’s total deposits and total liabilities.
- c)A panic situation when the deposit holders start withdrawing cash from the banks.
- d)The period in which a bank creates the highest credit in the market.
Correct answer is option 'C'. Can you explain this answer?
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Verified Answer
Which of the following with regard to the term ‘bank run’ ...
- A bank run occurs when a large number of people withdraw their money from a bank because they believe the bank may cease to function in the near future.
- As more people withdraw their deposits, the likelihood of default increases, and this encourages further withdrawals. This can destabilize the bank to the point where it faces bankruptcy.
Most Upvoted Answer
Which of the following with regard to the term ‘bank run’ ...
Bank Run Explanation:
Bank Run Definition:
A bank run is a situation in which a large number of depositors panic and simultaneously withdraw their funds from a bank, typically due to concerns about the bank's solvency or stability.
Causes of Bank Run:
Perceived instability: Rumors or news of the bank's financial troubles can lead to a loss of confidence among depositors.
Actual financial problems: If a bank is facing liquidity issues or insolvency, depositors may rush to withdraw their funds before the bank collapses.
External factors: Economic downturns, political instability, or other external events can trigger a bank run.
Impact of Bank Run:
Bank solvency: A bank run can quickly deplete a bank's cash reserves, leading to insolvency.
Economic instability: Bank runs can trigger a domino effect, causing other banks to face liquidity problems and potentially leading to a broader financial crisis.
Regulatory response: Governments and central banks may intervene to stabilize the banking system and prevent widespread panic.
Preventing Bank Runs:
Deposit insurance: Guaranteeing deposits up to a certain amount can provide reassurance to depositors and prevent bank runs.
Regulatory oversight: Strong regulatory oversight and monitoring can help detect and address potential issues before they escalate.
Central bank support: Central banks can provide emergency liquidity to banks facing funding shortages during a crisis.
Conclusion:
A bank run is a serious threat to the stability of the financial system, as it can quickly erode trust in banks and lead to widespread economic turmoil. Preventative measures and swift regulatory intervention are crucial in mitigating the risks associated with bank runs.
Bank Run Definition:
A bank run is a situation in which a large number of depositors panic and simultaneously withdraw their funds from a bank, typically due to concerns about the bank's solvency or stability.
Causes of Bank Run:
Perceived instability: Rumors or news of the bank's financial troubles can lead to a loss of confidence among depositors.
Actual financial problems: If a bank is facing liquidity issues or insolvency, depositors may rush to withdraw their funds before the bank collapses.
External factors: Economic downturns, political instability, or other external events can trigger a bank run.
Impact of Bank Run:
Bank solvency: A bank run can quickly deplete a bank's cash reserves, leading to insolvency.
Economic instability: Bank runs can trigger a domino effect, causing other banks to face liquidity problems and potentially leading to a broader financial crisis.
Regulatory response: Governments and central banks may intervene to stabilize the banking system and prevent widespread panic.
Preventing Bank Runs:
Deposit insurance: Guaranteeing deposits up to a certain amount can provide reassurance to depositors and prevent bank runs.
Regulatory oversight: Strong regulatory oversight and monitoring can help detect and address potential issues before they escalate.
Central bank support: Central banks can provide emergency liquidity to banks facing funding shortages during a crisis.
Conclusion:
A bank run is a serious threat to the stability of the financial system, as it can quickly erode trust in banks and lead to widespread economic turmoil. Preventative measures and swift regulatory intervention are crucial in mitigating the risks associated with bank runs.
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Which of the following with regard to the term ‘bank run’ is correct?a)The net balance of money a bank has in its chest at the end of the day’s businessb)The ratio of the bank’s total deposits and total liabilities.c)A panic situation when the deposit holders start withdrawing cash from the banks.d)The period in which a bank creates the highest credit in the market.Correct answer is option 'C'. Can you explain this answer?
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Which of the following with regard to the term ‘bank run’ is correct?a)The net balance of money a bank has in its chest at the end of the day’s businessb)The ratio of the bank’s total deposits and total liabilities.c)A panic situation when the deposit holders start withdrawing cash from the banks.d)The period in which a bank creates the highest credit in the market.Correct answer is option 'C'. Can you explain this answer? for Defence 2024 is part of Defence preparation. The Question and answers have been prepared according to the Defence exam syllabus. Information about Which of the following with regard to the term ‘bank run’ is correct?a)The net balance of money a bank has in its chest at the end of the day’s businessb)The ratio of the bank’s total deposits and total liabilities.c)A panic situation when the deposit holders start withdrawing cash from the banks.d)The period in which a bank creates the highest credit in the market.Correct answer is option 'C'. Can you explain this answer? covers all topics & solutions for Defence 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Which of the following with regard to the term ‘bank run’ is correct?a)The net balance of money a bank has in its chest at the end of the day’s businessb)The ratio of the bank’s total deposits and total liabilities.c)A panic situation when the deposit holders start withdrawing cash from the banks.d)The period in which a bank creates the highest credit in the market.Correct answer is option 'C'. Can you explain this answer?.
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