Question

A bank run involves:

A) a failure by a bank to get the maximum return on its investments.
B) large numbers of depositors withdrawing their deposits within a short period of time.
C) a bank being forced out of business.
D) fraud on the part of a bank's managers.

Answer 1

Answer:

The correct answer is letter "B": large numbers of depositors withdrawing their deposits within a short period of time.

Explanation:

A bank run is a situation in which account holders massively withdraw their funds under the fear the financial institution will lose its liquidity. The situation gets to a point in which the bank is at risk of sensing all its reserves and fail to provide all its clients the money they deposited.

In the U.S. financial institutions with deposits between $16 and $122.3 million must have a minimum reserve of 3%. When the deposits exceed $122.3 million the minimum reserve increases to 10%. The rest of the money is reinvested by banks.