What Is a Silent Bank Run?
A silent bank run is when depositors, worried about a bank's solvency, withdraw funds simultaneously without physically entering the bank. Silent bank runs are similar to normal bank runs, except funds are withdrawn via electronic fund transfers, wire transfers, and other methods that do not require physical withdrawals of cash. Most bank runs these days are silent bank runs.
- A silent bank run is similar to a traditional bank run except it involves non-physical means of withdrawing funds.
- Bank customers in a silent bank run may use wire transfers, electronic fund transfers, or requests placed through telephone or online banking platforms.
- The collapse of Silicon Valley Bank was a silent bank run, and the 2008 financial crisis included several examples of silent bank runs.
- Like normal bank runs, silent banks runs can result in a bank's insolvency and collapse.
What is a Bank Run?
How Silent Bank Runs Work
Silent bank runs are a type of bank run in which many people make withdrawals simultaneously, but without actually going into a branch. Instead of visiting a bank in person to withdraw cash, today you can withdraw money using various electronic means, such as online banking platforms.
In many ways, technologies that allow for remote withdrawals make the prospect of a bank run even more threatening. Many physical barriers that would have helped slow the pace of a bank run—such as customers needing to wait in long queues to withdraw funds—are no longer applicable. Similarly, customers today do not need to wait to place orders within a bank's working hours. They can issue an order online at any time and that order will be processed once the bank opens.
On the other hand, modern conveniences might also benefit banks by making the occurrence of a bank run less visible to outside observers. A depositor might be more likely to withdraw their funds if they see other depositors lining up outside a bank wishing to do so. With electronic withdrawal requests, the symptoms of a bank run may be less easily seen.
Examples of a Silent Bank Runs
During the 2007-08 Financial Crisis, many financial institutions faced silent bank runs, as depositors feared losing their money if banks were to collapse. Across U.S. and Europe—particularly in the U.K. and Iceland—silent runs drained bank reserves, which served to deepen the crisis and force several large institutions to the brink of collapse.
One notable silent bank run affected Wachovia in 2008. Depositors withdrew $15 billion over a two-week period after Wachovia reported negative earnings results in April 2008. A second wave of withdrawals occurred in September 2008. The failure of Lehman Brothers triggered an $8.3 billion run on Wachovia, followed by a $10 billion run after Washington Mutual failed. This combined $18.3 billion represented 4.4% of Wachovia's depositor base.
Much of the withdrawals were concentrated among commercial accounts with balances above the $100,000 limit insured by the Federal Deposit Insurance Corporation (FDIC).
Though Wachovia had other liquidity problems prior to September 2008, the run on deposits exacerbated its woes and contributed to the FDIC encouraging its sale to Wells Fargo (WFC).
The Great Recession also saw bank runs happen in nations such as Ireland, the U.K., and Iceland. Northern Rock, the first British bank to experience a run of any kind since Victorian times, experienced both a silent and a traditional bank run in September 2007.
The run started after media reported Northern Rock had gone to the Bank of England for help, and accelerated as customers realized deposits above £2,000 were not fully insured. Depositors withdrew funds through the internet, telephone and mail—in addition to forming queues outside bank branches.
What Made the Silicon Valley Bank Collapse?
In March 2023, a silent run on deposits caused the collapse of Silicon Valley Bank. The bank reported that it needed $2.25 billion to shore up its balance sheet, and by the end of the following business day, customers had withdrawn about $42 billion.
What Is a Bank Panic?
A bank panic, or a bank run, is when a mass number of bank customers withdraw their funds from a financial institution on fears the bank will become insolvent. A bank panic may be triggered by unfounded fears, but a run on deposits can actually lead to a bank's insolvency.
What Happens When the Bank Runs Out of Money?
When a bank runs out of money and becomes insolvent and cannot meet its obligations to creditors and depositors, it is closed by a federal or state regulator. The FDIC then reimburses depositors for up to $250,000 for any lost deposits. In some cases, the FDIC may provide more coverage, even full reimbursment.
The Bottom Line
A silent bank run is when bank customers flock to banks though electronic channels to make withdrawals because of a loss of confidence in the bank. Bank runs can lead to a bank failure. To reduce your risk of losing money in a bank run, you can keep the amount of your deposit under the FDIC insured limit of $250,000 per depositor, per insured bank. If you need to deposit more funds, you could open an account at another bank and receive the same protection.