Bank Run
A crisis where many depositors simultaneously withdraw funds from a bank out of fear it will fail.
What is Bank Run?
A bank run occurs when a large number of depositors simultaneously withdraw their funds from a bank because they fear the institution is or will become insolvent. Since banks operate on fractional reserve banking — holding only a fraction of deposits as cash reserves — even a solvent bank cannot immediately honor all withdrawal requests. Bank runs can thus become self-fulfilling prophecies: the panic itself can cause a solvent bank to fail. Deposit insurance (FDIC in the US, covering up to $250,000 per depositor per institution) and central bank emergency lending facilities (the Federal Reserve's discount window) were created to prevent bank runs by eliminating the incentive to be 'first in line.'
Example
In March 2023, Silicon Valley Bank (SVB) experienced the fastest bank run in US history. After announcing a $1.8 billion loss on a bond portfolio sale, depositors — many holding well over the $250,000 FDIC limit — withdrew $42 billion in a single day. SVB's uninsured deposit base made it uniquely vulnerable. The FDIC seized the bank within 48 hours of the announcement, though regulators ultimately guaranteed all deposits to prevent contagion spreading to other regional banks.