Question

Which of the statements is not true about a bank run? Fears leading to bank runs can be self-fulfilling. There was a wave of bank runs during the Great Depression. Bank runs are bad for the bank affected and usually good for the bank's competitors. Deposit insurance is designed to reduce the risk of bank runs for depository banks. Since the Great Depression the government has set up regulation that has eliminated most bank runs.

Answer 1

Answer:

Bank runs are bad for the bank affected and usually good for the bank's competitors

Explanation:

A bank run happens when bank depositors withdraw their money deposited due to fear of the bank's solvency.

Bank runs can work as a self fulfilling prophecy. For example, if there a rumour that a bank is insolvent and it is not, depositors would start withdrawing their monies. This would eventually lead to the bank being insolvent.

Bank runs affect other banks and can lead to the collapse of the whole financial system. Bank runs occurred during the great depression

Bank runs led to the establishment of deposit insurance. The aim of deposit insurance is to increase the confidence of depositors in banks because depositors know their deposits are insured