Rumors of a bank failing, even if not true, can become a self-fulfilling prophecy because:
A)Customers will not want to obtain loans from this bank
B)The rumors will cause people to not want to deposit in this bank
C)Regulators will scrutinize the bank heavily looking for something wrong
D)Depositors will rush to the bank to withdraw their deposits and the bank under normal situations would not have sufficient liquid assets on hand

Question

Quizplus · Accepted Answer

When rumors of a bank failing spread, customers may rush to the bank to withdraw their deposits, even if the rumors are not true. This can cause a run on the bank, which means that depositors demand their money back all at once. If the bank does not have enough cash reserves or liquid assets on hand to meet these demands, it may become insolvent and fail. Therefore, rumors of a bank failing can become a self-fulfilling prophecy.

Rumors of a Bank Failing, Even If Not True, Can