A bank run is one of the important points in the financial market. A bank run occurs when a large scale of depositors withdraw their deposits due to any cause. The probability of defaults increases as a large number of account holders withdraw money and assets. In special cases, the bank is not able to cover the withdrawal, and the reserve falls.
The heavy cash withdrawal makes a scarcity in reserve and the financial ability. If one has the knowledge of banking system can imagine the problem. With manuals as bank run homework answers, you will get a detailed idea.
When people lose confidence in the financial institution, or another economic problem comes the depositors withdraw heavy cash suddenly. The sudden scarcity of money and asset causes hamper in the reserve which leads to the bank run.
In the international market and domestic market if the bank cannot win the confidence of its customers the customers may think that the bank is about to fail. At that time people begin to withdraw as much as they can in a short period. Sometimes people begin to withdraw money from the electronic machines.
Structure and function of banking
Banks and other financial institutions play a vital role in maintaining the liquidity of money and flows of the money. We know that banks are subject to deal with the deposits and maintain the monetary policy of a nation. This financial institution has the ethical and legal right to deal with public money, lending money and providing loans.
In a country, there is an apex institution which works as a central bank and monitors other commercial banks. Among the financial institutions, commercial banks deal with the public money, give loans and make other transactions. When you are studying banking structure and function, you may find help from the bank run homework answers.
Commercial banks and central bank
All the commercial banks have to keep their deposit as an asset to the central bank. The central bank will decide the percentage and keep the percentage as a mortgage. Banks make their deals with the deposits and invest money in different fields. The commercial banks can lend money to an individual or a firm and the government at certain interests.
The central bank will fix the interests structure. The government of different countries allows the statutory liquidity ratio and the cash reserve ratio according to their socio-economic condition. The rate of interests can be altered with the change of production and other circumstances.
Banking is undoubtedly an important part of economics. Students have to face many questions related to banking and other financial institutions. Nowadays many terms and rules are being coined for making development and lucidity in the financial market.
The central banks need to monitor the commercial banks so that people can trust and deposit money and assets. When you are finding study material for making assignments on banking, you may follow bank run homework answers.
How does a bank go bankrupt?
When any bad incident happens, and a large number of account holders begin to withdraw money simultaneously in a short time, a scarcity occurs in the reserve. This situation is called bank run. If something questionable rises in the insolvency of a bank, the customer may lack confidence.
Manuals as bank run homework answers will provide you vivid information and analysis. At that time the commercial banks get some money from the reserves from the central bank and let the customers withdraw their money.
Impact of bank run
Banks run is a disaster and may endanger the economy of a country. Banks can understand the insolvency, and they have some steps to take. But if all hopes are gone, the bank may lose the reserves and may hamper the depositors. In this case, the bank has to sell all the properties and assets to repay the debts.
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Prevention of Bank Run
Students also have to make answer on the prevention of the bank run. For making sustainable development and preventing the crisis government has taken many policies. The crisis was seen in the 1930s, and after taking some several steps, the Government was able to prevent the bank run.
The central banks decided to keep a large portion of the reserve which may help in the time of the crisis. Some rules were made which can protect the banks from going bankrupt and to protect the economy of a country.
There are many chances of getting insurance for the banks which will help in the time of crisis, and the banks can let the depositors withdraw their money. People also withdraw money from the wire transfer and online transfer.
This is called silent bank run. In 2008 many banks have faced the silent bank run, as the customers have withdrawn much money and the reserve collapsed. Like US many countries are trying to solve the silent bank run to protect banks and financial market of those countries.
A bank has the legal authority to hold the public money and asset and deal with them. Bridge banking is charged to help the banks for making operations until the bank becomes solvent. This also works as a national bank and make all transaction following the federal rules.
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