It is easy for one financial institution to reduce its leverage by acting alone,but when many financial institutions try to do the same thing at once,asset prices fall rapidly and bank capital declines for all such institutions.

Question

Quizplus · Accepted Answer

This is because the actions of one financial institution can have ripple effects on the overall market and cause a chain reaction. When many institutions try to reduce their leverage at once, it can lead to a sudden decrease in the demand for assets, causing prices to drop and affecting the capital levels of all institutions involved.

It Is Easy for One Financial Institution to Reduce Its