Imagine a scenario where a sudden loss of confidence freezes the market for short-term loans between banks. In response, a single, solvent bank decides to sell a large volume of its assets to meet its immediate cash needs. Why might this individually rational decision become problematic for the financial system as a whole?
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Imagine a scenario where a sudden loss of confidence freezes the market for short-term loans between banks. In response, a single, solvent bank decides to sell a large volume of its assets to meet its immediate cash needs. Why might this individually rational decision become problematic for the financial system as a whole?
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