The reason that a run on a single bank can turn into a bank panic that threatens the entire financial system is:
A)Information asymmetries
B)Moral hazard
C)The lack of regulation
D)The increased reliance on web-based funds transfers

Question

Quizplus · Accepted Answer

A run on a single bank can create uncertainty and panic among depositors, which may cause them to withdraw their funds from other banks as well, even if those banks are financially sound. This is known as contagion and is driven by information asymmetries, where depositors do not have complete information about the true financial condition of the banks they are dealing with. As a result, a bank panic can quickly spread and threaten the entire financial system. Moral hazard, lack of regulation, or increased reliance on web-based funds transfers may exacerbate these problems, but they are not the primary cause of bank panics.

The Reason That a Run on a Single Bank Can