The depositors of JS bank were worried that the value of this bank's assets was less than the value of its liabilities, so they started to withdraw their deposits from the bank. This expanding panic and rising flood of withdrawals is called ___.

Question

Rigoberto Cunningham

Business

4 December, 00:11

The depositors of JS bank were worried that the value of this bank's assets was less than the value of its liabilities, so they started to withdraw their deposits from the bank. This expanding panic and rising flood of withdrawals is called ___.

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Answers (1)

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Kira Guzman · Answer 1

This expanding panic and rising flood of withdrawals is called Bank Run.

Explanation:

Bank run means many customers of the bank withdraw their deposits due to the fear that the bank might become insolvent. When many customers withdraw their funds then the bank might not be able to meet the withdrawals with the available funds.

This further increases the risk of the bank to default when all the customers withdraw their deposits. This is because the banks hold only little amount as cash in hand while the rest of the bank's wealth is invested in long term assets.