Bank Runs: Definition, History, and Real-World Examples

Bank runs have been a part of financial history for centuries, with one of the earliest recorded bank runs occurring in 1797 in England.

In 1797, the British government suspended the gold standard, causing widespread panic among depositors who feared their gold would be seized.

A bank run is a situation where many depositors withdraw their money from a bank at the same time, often due to a loss of confidence in the bank's stability.

This can lead to a rapid depletion of the bank's assets and even its collapse.

The Bank of England, founded in 1694, was one of the first central banks to experience a bank run, during the Napoleonic Wars.

In the US, the 1930s saw a series of bank runs, starting with the failure of the Bank of United States in 1930.

The bank run of 1933 was particularly severe, with over 9,000 banks failing in a single year.

The 2008 global financial crisis also saw widespread bank runs, with depositors in several countries withdrawing large amounts of cash from banks.

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A bank run is when customers withdraw their deposits at the same time over fears about the bank's solvency. This can happen due to rumors or concerns about the bank's financial stability.

As more people withdraw their funds, the bank's reserves may not be sufficient to cover the withdrawals. This can lead to a vicious cycle where the bank's probability of default increases, causing even more people to withdraw their deposits.

The fear of losing money can spread quickly, leading to a bank run. This is often fueled by rumors or misinformation about the bank's financial health.

In extreme cases, a bank run can lead to the bank's collapse. This is why it's essential for banks to maintain sufficient reserves to cover withdrawals.

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Bank runs have been a part of financial history for over a century. In fact, the first recorded bank run in the article occurred in 1866 when Overend, Gurney and Company suffered a bank run due to poor railway stock prices.

Many bank runs occurred during the Panic of 1893, and this wasn't the only time bank runs happened during a financial crisis. The Panic of 1907 also saw many bank runs.

The Shōwa Financial Crisis in 1927 was triggered by the Bank of Japan's proposal to redeem discounted bonds, which led to rumors that banks holding such bonds would go bankrupt. This resulted in a wave of bank runs that led to the fall of 37 banks across the Empire of Japan.

Here are some notable bank runs in history:

The 19th century was a tumultuous time for banking, with several bank runs occurring throughout the century. One notable example is the bank run that took place in 1866, when Overend, Gurney and Company suffered a run due to poor railway stock prices and refused assistance from the Bank of England.

The bank's incorporation as a limited liability company in 1865 didn't provide the necessary protection, and payments were suspended on May 10, 1866, leading to a panic among the town's people.

Many bank runs occurred during the Panic of 1893, a period marked by widespread financial instability.

The consequences of bank runs were severe, as seen in the case of Overend, Gurney and Company, where the inability to access one's money led to widespread disappointment among the townspeople.

Here are some key dates related to bank runs in the 19th century:

The 1900s were a challenging time for banks, with many bank runs occurring during the Panic of 1907. This period was marked by widespread financial instability.

One notable event was the collapse of Caldwell and Company, a large financial holding company in the South, which led to the closure of the Bank of Tennessee in November 1930. This event triggered a series of bank runs and closures across the region.

The Panic of 1907 was a major economic downturn that had far-reaching consequences, including the failure of many banks.

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The 1920s was a tumultuous time for the global economy, particularly in Japan. The Shōwa Financial Crisis was triggered in January 1927 by the Bank of Japan's proposal to redeem discounted bonds it had issued to overextended banks.

This decision led to widespread panic, as banks holding these bonds feared they would go bankrupt. The ensuing bank runs resulted in the collapse of 37 banks across the Empire of Japan.

The crisis was so severe that it led to the resignation of Prime Minister Wakatsuki Reijirō.

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Bank runs have occurred in modern history, often associated with the Great Depression. A succession of bank runs on thousands of banks occurred in the early 1930s.

The Great Depression was triggered by the 1929 stock market crash, which led to widespread panic and deposit withdrawals. This had a domino effect on the economy.

More recent examples of significant bank runs include Silicon Valley Bank, Washington Mutual Bank (WaMu), and Wachovia Bank. These banks faced severe financial difficulties due to various factors.

Washington Mutual (WaMu), the largest bank failure in U.S. history, had about $310 billion in assets at the time of its failure in 2008. Its collapse was caused by a poor housing market, rapid expansion, and a bank run that saw customers withdraw $16.7 billion within two weeks.

JPMorgan Chase eventually bought Washington Mutual for $1.9 billion. This acquisition helped stabilize the financial system.

Wachovia Bank was also shuttered after depositors withdrew more than $15 billion over a two-week period following negative earnings results. The bank was eventually acquired by Wells Fargo for $15 billion.

Much of the withdrawals at Wachovia were concentrated among commercial accounts with balances above the FDIC limit. This highlights the importance of FDIC insurance in preventing bank runs.

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Governments have taken steps to prevent bank runs, such as establishing reserve requirements that mandate banks to keep a certain percentage of deposits on hand as cash.

The Federal Reserve has reduced this requirement to zero, as other monetary policy tools have become more effective. The FDIC was established in 1933 to insure bank deposits and maintain stability in the financial system.

The FDIC provides insurance based on ownership category, with each depositor insured for up to $250,000 in each category. In some cases, the FDIC may extend its coverage, as it did when Silicon Valley Bank failed in 2023.

Banks may need to take a proactive approach to prevent a bank run, such as temporarily closing to prevent people from withdrawing their money en masse. Franklin D. Roosevelt implemented a bank holiday in 1933 to prevent further bank runs.

A bank run occurs when people try to withdraw all their funds due to fear of a bank collapse. This can happen even if the bank is not actually insolvent, but rather due to public fear pushing the bank into insufficient liquidity.

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Trust is a critical quality for any bank, and a loss of customer trust can create panic. Bank regulations have made bank failures less common, but a bank run can still occur due to public fear.

Banks may limit withdrawals per customer or suspend all withdrawals altogether to deal with the panic. In extreme cases, a complete shutdown may be necessary, as was done during the US bank holiday in 1933.

To mitigate a bank run, banks may work with authorities to access short-term liquidity, satisfy demands, or raise equity to meet demands. This can help prevent a bank from becoming insolvent and maintain stability in the financial system.

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Recovery from bank runs is crucial for restoring public trust in the financial system. President Franklin D. Roosevelt declared a national bank holiday in 1933 to inspect banks and determine their solvency.

The Banking Act of 1933 was a key step in this recovery process. It led to the formation of the Federal Deposit Insurance Corporation (FDIC), which was responsible for supervising, regulating, and providing deposit insurance to commercial banks.

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The FDIC plays a vital role in maintaining public confidence in the financial system. It promotes sound banking practices among banks to prevent future bank runs.

Roosevelt's speeches on the radio in 1933 were instrumental in reassuring the public that the government had their best interests in mind. He assured citizens that keeping money in the bank was safer than keeping it under the mattress.

To avoid triggering another bank run, the FDIC performs takeover operations behind closed doors. The next business day, the bank reopens under new ownership, allowing customers to access their deposits without incident.

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A bank run occurs when a large group of depositors withdraw their money from banks at the same time.

The critical quality for any bank is trust, and if customer trust is suddenly diminished or lost, it can create panic. This panic can be triggered by public fear, not just actual bank failures.

A bank's treasury function can become strained if more customers than planned withdraw money, putting a strain on the bank's daily reserves. Managing these reserves is a critical function of any bank.

To reduce your risk of losing money in a bank run, you can keep your deposit amounts under the FDIC-insured limit of $250,000 per depositor, per insured bank.

Here are some key facts about bank runs:

A silent run is a type of bank run that occurs when depositors withdraw their funds electronically in large volumes.

This can happen through ACH transfers, wire transfers, and other methods that don't require physical withdrawals of cash.

Silent runs are similar to traditional bank runs, except that funds are withdrawn digitally rather than in person.

A silent run can be just as damaging to a bank as a traditional run, as it can cause a sudden and significant drain on the bank's cash reserves.

Depositors may withdraw their funds in a silent run due to fear of a bank collapse, just like in a traditional run.

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Term deposits can be a powerful tool for banks to manage their liabilities and prevent bank runs. A bank can incentivize its customers to use non-callable term deposits, which earn a higher percentage of interest on the money.

By locking up a bank's liabilities, term deposits effectively prevent a bank run even if customers withdraw other deposits. This is because customers can only withdraw their money after the end of an agreed period and not on demand.

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A bank run is a situation where many depositors withdraw their money from a bank at the same time, often due to a loss of trust in the bank's ability to stay solvent. This can happen even if the bank is actually solvent, as people may panic and withdraw their funds based on rumors or fears.

The FDIC-insured limit is $250,000 per depositor, per insured bank, which can help protect your deposit amounts in case of a bank run. If you need to deposit more funds, you can open an account at another bank and receive the same protection.

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A bank run can be triggered by a loss of trust in the bank, which can be caused by various factors. For example, if a bank fails to meet its regulatory requirements or if there are rumors of a bank's insolvency, it can create a sense of panic among depositors.

The consequences of a bank run can be severe, as it can lead to a bank's insolvency and even its collapse. In extreme cases, a bank run can cause the collapse of a bank, as seen in the case of Silicon Valley Bank in 2023.

Here are some key statistics about bank runs:

A bank may limit withdrawals or suspend them altogether to deal with a bank run, but this can be a drastic measure that may not always be effective. In some cases, a bank may even have to close its doors temporarily to prevent a complete collapse.

A bank run is considered bad because it can bring down banks and cause a more systemic financial crisis. This is a serious outcome that can have far-reaching consequences.

The problem is that banks usually only have a limited amount of cash on hand that is not the same as its overall deposits. This means they might not have enough cash to return to all their depositors.

In a bank run, a large number of customers demand their money at the same time, which can quickly deplete a bank's cash reserves. This can lead to a situation where the bank simply can't return their depositors' money.

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A bank run occurs when a large group of depositors withdraw their money from banks at the same time. This can happen due to fears that the institution will become insolvent.

Customers in bank runs typically withdraw money based on fears that the institution will become insolvent. This can be a self-reinforcing cycle, where one person's withdrawal leads to another's, and so on.

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Banks will use up their cash reserves and can end up in default as more people withdraw money. This is because banks typically don't keep all their deposits in cash.

The Federal Deposit Insurance Corporation (FDIC) was established in 1933 to try to reduce the occurrence of bank runs. The FDIC provides insurance to depositors, which can help prevent bank runs by giving depositors confidence in the bank's stability.

Bank runs have occurred throughout history, including during the Great Depression and the 2008 financial crisis. These events highlight the importance of understanding bank runs and their consequences.

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Silicon Valley Bank was a victim of a bank run caused by venture capitalists in March 2023.

The bank's collapse was a result of customers withdrawing a staggering $42 billion in a single business day, after it reported needing $2.25 billion to shore up its balance sheet.

This massive withdrawal was a significant portion of the bank's total assets, which stood at $209 billion as of the fourth quarter of 2022.