Which among the following best describes "Bank Run"?
It refers to a situation when there is excess liquidity in the banks.
Incorrect AnswerIt is a condition when Non-performingassets (NPAs) of banks increase above the threshold limit.
Incorrect Answer It is the situation in which a bank decides to stop all its services to expand its presence by opening several new branches.
Incorrect AnswerIt is a situation when a large number of customers of a bank withdraw their deposits simultaneously.
Correct AnswerExplanation:
A 'bank run' occurs when a large number of customers of a bank or another financial institution withdraw their deposits simultaneously due to concerns about the bank's solvency. As more people withdraw their= funds, the probability of default increases, thereby prompting more people to withdraw their deposits. In extreme cases, the bank's reserves may not be sufficient to cover the withdrawals.
• When a bank cannot satisfy customer demands for withdrawals—or if there’s a rumor that the bank will be unable to do so—the situation worsens. Customers fear being the “last one to the exit,” and they attempt to withdraw as much as possible. In a worst-case scenario, a bank may be unable to meet obligations, leading to complete failure.
• Hence option (d) is the correct answer.
![]()
By: abhimanu admin