Bank Run

A bank run is when a large number of customers withdraw their deposits from a bank simultaneously due to fears that the bank might go out of business or become insolvent. This panic is typically triggered by concerns over the bank’s financial stability.

In the past, customers would actually run to the bank and withdraw their money physically. Today bank runs are generally performed digitally.

Many banks operate on a fractional reserve system, meaning they only keep a portion of total deposits as cash on hand, using the rest to provide loans and make investments, which generate profits. When too many withdrawals happen at once, the bank may not have enough liquid assets to meet the demand, potentially leading to insolvency and bank failure. Examples of this often occur if banks expand too rapidly, make poor investments, or if there are rumors about insufficient cash reserves or liquidity.