Bank Run

A bank run occurs when a large number of a bank's customers withdraw their deposits simultaneously due to fears that the bank will become insolvent.

Example

During the Great Depression, many banks experienced runs as customers, fearing the loss of their savings, rushed to withdraw funds, leading to widespread bank failures.

Key points

• Occurs when many customers withdraw deposits simultaneously out of fear of insolvency.

• Can cause even solvent banks to fail due to liquidity shortfalls.

• Prevented today by regulations and deposit insurance.

Quick Answers to Curious Questions

What triggers a bank run?

A bank run is typically triggered by rumors or fears that a bank is insolvent or at risk of failing.

How can bank runs be prevented?

Bank runs are mitigated through deposit insurance and central bank support to reassure customers and maintain confidence.

What are the consequences of a bank run?

A bank run can lead to a bank's collapse and broader financial instability if not contained.