Question

If people speculate that a run on one bank will cause a run on all banks in the financial​ system, and this speculation proves​ accurate, then the financial system would experience what is known as a:__________

Answer 1

Answer:

This is known as Bank panic

Explanation:

Bank panic happens when in a banking system, many banks suffer from a bank run, that is, many of its depositors loss their confidence that the bank may repay their deposit, thus they want to withdraw their deposit put with the bank.

As Banks operating using notably high leverage, many of its assets are not highly liquid ( e.g: loans, bonds that will not be paid until maturity) and the fact that they lend to and borrow from each others frequently and heavily, a bank run happens for one bank may cause liquidity issues to not only that bank but also other banks in the systems.

Having understood that, people tend to speculate that a run on one bank will cause significant problem to the systems, and a likely probability that bank panic occurs.