How might asymmetric information cause a well-managed bank to be abandoned by its depositors?
What will be an ideal response?
Bank depositors know little about their bank's lending practices, except when a particular bank fails. Depositor's at other banks have to wonder whether their bank is safe, which comes down to whether other depositors believe the bank to be safe. In the absence of credible deposit insurance, any depositor who is unsure that other depositors will keep their funds in the bank must, rationally, withdraw her funds. If enough depositors do so, the bank has failed.
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When a currency decreases in value relative to another currency, the currency has
A) declined. B) appreciated. C) accelerated. D) decelerated. E) depreciated.
Most economists think changes in which type of unemployment affects inflation?
A) frictional unemployment B) cyclical unemployment C) structural unemployment D) natural rate of unemployment