Which of the following describe a common cause of bank panics? Check all that ap

Question

Which of the following describe a common cause of bank panics? Check all that apply. Potential buyers of the assets of a bank, incorrectly rumored to be distressed, may suspect the assets to be of poor quality. v A run on a given bank is often contagious and spreads to other financial institutions. Rumors that a bank is in financial trouble spread easily. Which of the following are reasons why bank panics were largely eliminated after 1933 Check all that apply. The Federal Reserve the Fed") stands ready to inject reserves into the system more quickly in a crisis. state-chartered banks are freer from the Fed's regulations. Banks are required to hold a significant percentage of their assets as bank capital.

Explanation / Answer

(1) Common cause of bank panic:

- Rumor that a bank is in financial trouble spread easily.

The other two options describe events after a bank run (panic) starts, not the cause of the panic.

(2) Bank panics were eliminated because:

- Fed stands ready to inject reserves

- Banks are required to hold a % of assets as bank capital (As per Basel III norms)

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