economics

bank run

A financial crisis where a large number of customers simultaneously withdraw their deposits from a bank due to fears of insolvency, potentially causing the bank to fail.

Example

“When rumors spread about Silicon Valley Bank's losses in 2023, depositors triggered a bank run by withdrawing $42 billion in a single day.”

Memory Tip

BANK RUN = everyone runs to get their money out at once. Self-fulfilling panic that kills banks.

Why It Matters

Bank runs directly threaten the safety of your deposits and can destroy your financial security if you have money in an affected institution. Understanding this concept helps you make informed decisions about where to keep your savings and why deposit insurance protections like FDIC coverage exist.

Common Misconception

Many people think that banks always have enough cash on hand to pay all depositors immediately, but in reality banks lend out most deposits to earn interest. A bank run exposes this fundamental mismatch between available cash and total deposits owed.

In Practice

During the 2008 financial crisis, Washington Mutual experienced a bank run where customers withdrew over 16 billion dollars in just 10 days due to fears about the bank's mortgage holdings. This massive withdrawal forced the bank to fail and be seized by regulators, though depositors with under 250000 dollars were protected by FDIC insurance.

Etymology

Customers literally RUN to the BANK to withdraw their money before it becomes unavailable.

Common Misspellings

bank-runbank runnbankrun

More in economics

Other economics terms you should know

austerityDifficult economic conditions created by government measures…bailoutFinancial assistance given to a failing business or economy …deflationA general decline in prices for goods and services, typicall…economicsThe social science that studies the production, distribution…exchange rateThe value of one currency for the purpose of conversion to a…federal reserveThe central banking system of the United States, which manag…