Why a bank might fail, including the risks involved in lending long term and borrowing short term
Banks borrow money from depositors at short notice and lend it out for years. If too many depositors demand their money back at once, the bank can run out of cash and collapse.
Real World
In September 2007, Northern Rock faced a classic bank run: depositors queued outside branches to withdraw savings after it became unable to fund its mortgage book through short-term wholesale markets.
Exam Focus
Always name the specific risk type — liquidity risk vs. credit risk vs. solvency risk — for full marks on 'explain why a bank might fail'.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
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