Question

)What is a bank run? Explain. How can a bank run turn into a financial panic? Explain. How can the Federal Reserve prevent banking panics? Explain. How can a bank become insolvent? Explain. How do regulators respond when a bank becomes insolvent? Explain.

Answer 1

Part A

The bank run is a large number of people withdraw money from a bank at a time. It is because people think that the bank is ceased the near future.

Part B

If a large number of people seeks their deposit at a time, then the bank cannot repay their deposits. It will create bank panic or financial crisis in the banking system.

Part C

The federal reserve prevent the banking panics by using the deposit insurance system, the capital requirement reduces and increases the transparency in the banking system

Part D

The major problem of the bank run has been overstated. It is the bank cannot repay their deposits, or their liabilities is greater than the asset. It will likely to bank become insolvent.

Part E

The bank becomes insolvent because of inadequate regulators. The regulators should timely touch with the banks. They should intervene in the banking system.