Bank Run

AAA

DEFINITION of 'Bank Run'

A situation that occurs when a large number of bank or other financial institution's customers withdraw their deposits simultaneously due to concerns about the bank's solvency. As more people withdraw their funds, the probability of default increases, thereby prompting more people to withdraw their deposits. In extreme cases, the bank's reserves may not be sufficient to cover the withdrawals. A bank run is typically the result of panic, rather than a true insolvency on the part of the bank; however, the bank does risk default as more and more individuals withdraw funds - what began as panic can turn into a true default situation.

Also called a "run."

INVESTOPEDIA EXPLAINS 'Bank Run'

Because banks typically keep only a small percentage of deposits as cash on hand, they must increase cash to meet depositors' withdrawal demands. One method a bank uses to quickly increase cash on hand is to sell off its assets, sometimes at significantly lower prices than if it did not have to sell quickly. Losses on selling the assets at lower prices can cause a bank to become insolvent. A "bank panic" occurs when multiple banks endure runs at the same time.

In the United States, the Federal Deposit Insurance Corporation (FDIC) is the agency that insures banking deposits. It was established by Congress in 1933 in response to the many bank failures that happened in the 1920s. Its mission is to maintain stability and public confidence in the U.S. financial system.

RELATED TERMS
  1. Silent Bank Run

    A situation in which a bank's depositors withdraw funds en masse ...
  2. Wildcat Banking

    The banking industry in parts of the United States from 1837 ...
  3. Bank Failure

    The closing of an insolvent bank by a federal or state regulator. ...
  4. Reservable Deposit

    A bank deposit subject to reserve requirements. Reserve requirements ...
  5. Federal Deposit Insurance Corporation ...

    The U.S. corporation insuring deposits in the U.S. against bank ...
  6. Bank

    A financial institution licensed as a receiver of deposits. There ...
RELATED FAQS
  1. Should commercial and investment banks be legally separated?

    Following the financial crisis of 2008-2009, much of the blame was directed at large financial institutions that took on ... Read Full Answer >>
Related Articles
  1. Economics

    The Federal Reserve

    Few organizations can move the market like the Federal Reserve. As an investor, it's important to understand exactly what the Fed does and how it influences the economy.
  2. Active Trading Fundamentals

    The Fall Of The Market In The Fall Of 2008

    How did America's strong economy tumble so quickly? Find out here.
  3. Budgeting

    The Greatest Market Crashes

    From a tulip craze to a dotcom bubble, read the cautionary tales of the stock market's greatest disasters.
  4. Personal Finance

    4 Tips To Cut Your Monthly Bank Fees

    We asked banking professions to share their biggest tips for tackling bank fees, and hopefully save more even before spring hits.
  5. Entrepreneurship

    JPMorgan vs. Goldman Sachs: A Tale of Two Stocks

    The performance of JPMorgan and Goldman has been impressive, but one has a slight edge.
  6. Entrepreneurship

    Which is The Best Bank for Your Buck, BAC or MS?

    One things stands out between these financial services giants when it comes to investing in them.
  7. Savings

    Mortgage Faceoff: Bank of America Vs. Wells Fargo

    Which bank offers the better mortgage deal? Here's how they compare on two popular types of mortgage.
  8. Insurance

    What Happens If Your Insurance Company Goes Bankrupt?

    When insurance companies go bankrupt or face financial difficulty, it's bad news for policy holders.
  9. Savings

    Say Goodbye To Overdraft Fees

    At $35 a pop, overdraft fees can mount up quickly. Here are 4 different strategies for avoiding them.
  10. Savings

    Top Checking Accounts With No Overdraft Fees

    Choosing the right checking account could save you hundreds of dollars in fees every year.

You May Also Like

Hot Definitions
  1. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  2. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  3. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
  4. Hurdle Rate

    The minimum rate of return on a project or investment required by a manager or investor. In order to compensate for risk, ...
  5. Market Value

    The price an asset would fetch in the marketplace. Market value is also commonly used to refer to the market capitalization ...
  6. Preference Shares

    Company stock with dividends that are paid to shareholders before common stock dividends are paid out. In the event of a ...
Trading Center