What is Bank Run?
A bank run is a situation when a large number of people suddenly withdraw their money from a bank because they’re worried about the bank’s stability and solvency. This can lead to more people getting scared and trying to withdraw their money too. Bank runs usually start because of rumors or real concerns about the bank’s financial health. When too many people withdraw their money at once, it can cause the bank to run out of cash, making it hard for them to pay everyone back. Bank runs can be dangerous because they can make otherwise healthy banks collapse, causing economic problems for everyone. Governments and regulators try to stop bank runs by reassuring people and keeping banks stable, for example with deposit insurance and emergency funding.
Geeky Takeaways
- A bank run occurs when depositors doubt the financial health of a bank and withdraw their deposits altogether.
- Problems of a bank run in one bank can cause problems for the whole banking system. It’s like a domino effect, where one falling piece knocks down the others.
- Governments need clear plans in place to handle bank runs and keep the banking system stable. These rules are like a playbook for dealing with financial emergencies.
- Insurance of savings ensures people that they will not lose everything. Insurance imparts safety to their money.
- A bank run occurs due to the behavior of the general public to follow the crowd. Hence, sometimes rumors can lead to the shutting down of healthy banks.
Table of Content
- Reasons Behind Bank Run
- Bank Runs in History
- Examples of Bank Runs
- Recovery from Bank Runs
- Bank Run Mitigation Measures
- Frequently Asked Questions (FAQs)