Bank Runs Today: A Timeline of Notable Failures and Recoveries

Bank runs today are a stark reminder of the fragility of our financial systems.

The first recorded bank run occurred in 1694, when the Bank of England faced a run on its doors after a failed expedition to the West Indies.

In 1929, the stock market crash led to a massive bank run in the United States, with over 9,000 banks failing in the following year.

The 2008 global financial crisis saw a wave of bank failures, including Lehman Brothers, which filed for bankruptcy in September of that year.

The response to these failures has often been swift, with governments and central banks implementing emergency measures to stabilize the financial system.

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A run on the bank is a situation where people try to withdraw all of their funds at the same time, fearing a bank collapse. This can happen simultaneously by many depositors, causing the bank to run out of cash.

The bank can become insolvent if it can't meet the sudden demand for cash, leaving depositors with a loss.

Bank runs can occur due to a sudden loss of trust among customers. This can create panic, even if the bank is not actually insolvent.

Public fear is often the trigger for a bank run, rather than an actual bank failure. In fact, with global banking regulations, bank failures are not typically the cause of bank runs.

A bank may limit withdrawals per customer or suspend all withdrawals as a way to deal with the panic. This drastic measure is sometimes taken in consultation with regulators.

Bank runs have a long history, with many occurring during significant economic events. Here are some notable examples:

A bank run is a phenomenon that has been around for centuries, and it's essential to understand what causes it. One of the primary reasons for a bank run is the loss of customer trust, which can be triggered by a variety of factors.

Trust is a critical quality for any bank, and if it's suddenly diminished or lost, it can create panic among customers. This panic can be fueled by rumors or even irrational fears, leading to a self-fulfilling prophecy.

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In the 17th century, the first bank in Europe, Stockholm Banco, experienced a bank run when its banknotes lost value due to rapid lending. The bank eventually closed operations, and the Crown took over, forming what is now the national bank of Sweden.

Bank runs can also occur due to public fear, which can push a bank into insufficient liquidity rather than actual insolvency. This was the case in 1866, when Overend, Gurney and Company suffered a bank run due to losses from poor railway stock prices.

A bank may limit withdrawals per customer or suspend all withdrawals altogether as a way to deal with the panic. In extreme cases, a national shutdown, like the one implemented by the US president in 1933, may be necessary to prevent a complete collapse of the banking system.

Here are some notable bank runs throughout history:

The 1930s were marked by widespread bank runs, which occurred during the Great Depression. Many people lost their life savings as they rushed to withdraw their money from banks that were struggling to stay afloat.

The Great Depression was a time of great economic uncertainty, and the banking system was severely tested. Bank runs were a major problem, as depositors lost confidence in the banks and rushed to withdraw their money.

To address this issue, Congress introduced deposit insurance to protect bank deposits. This was a crucial step in building back trust in the banking system and preventing further bank runs.

The FDIC, or Federal Deposit Insurance Corporation, was also born during this time. It was established to provide deposit insurance and protect depositors' funds.

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The Savings and Loan Crisis of the 1980s serves as a stark reminder of the dangers of interest-rate risk. High inflation episodes in the 1970s led to aggressive interest rate increases by the Federal Reserve, bringing the average interest rate of a 30-year fixed-rate mortgage to over 18% in 1981.

During this period, thrifts, a type of bank that only offered simple savings accounts and residential mortgage loans, struggled to compete. Their spread shrank or even became negative as interest rates rapidly increased.

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The fair market value of their fixed-rate mortgage loans decreased as interest rates in the market rose. This led to significant losses in the thrifts' loan books.

In response, Congress passed legislation to allow thrifts to expand into other deposit and lending products, including adjustable-rate mortgages. This move allowed thrifts to offer more flexible loan options, but also led to a lack of underwriting standards.

Many thrifts made far too many loans, reduced their underwriting standards, and began lending in areas where they were not familiar with the risk. This reckless behavior led to insolvencies, bank runs, and the failure of over 1,000 thrift institutions in the U.S.

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The 2008 financial crisis was a wake-up call for the banking industry, and one of the key factors that contributed to it was loan concentrations.

Loose lending standards led to a housing bubble, with banks giving out too many mortgage loans that were not backed by solid financials.

This created a precarious situation, with banks holding trillions of near-worthless investments and mortgage loans.

The crisis was exacerbated by new, complex financial products that were created during this time.

Hundreds of banks failed, including big names like Lehman Brothers and Bear Stearns, and smaller retail banks like Indymac Federal Bank and Washington Mutual.

The collapse of these banks was a direct result of their involvement in the mortgage loan crisis.

In response to the crisis, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010.

This law aimed to increase transparency and oversight in the banking industry, and gave government agencies more tools to monitor financial institutions.

The Basel III capital requirements were also introduced to mitigate bank risk internationally by requiring banks to increase their capital and maintain certain liquidity coverage ratios.

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The 1900s were a tumultuous time for the economy, with many bank runs occurring during the Panic of 1907.

One notable event of this era was the Panic of 1907, which was a major economic downturn that led to widespread bank runs.

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The 1920s were a time of significant financial turmoil in the Empire of 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 move led to widespread rumors that banks holding these bonds would go bankrupt, causing a wave of bank runs that ultimately resulted in the fall of 37 banks. The crisis was so severe that it led to the resignation of Prime Minister Wakatsuki Reijirō.

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The 1990s was a decade marked by significant financial instability in several countries.

In Spain, the banking crisis of 1994 led to a major scandal when Banesto was taken into control by the Bank of Spain due to a massive 450,000 million Pesetas (€2,704 million) equity hole in the bank's finances.

Bank runs were a recurring issue in Malaysia during this time, with several bank runs happening at MBf Finance Berhad between 1997 and 1999.

The severity of these bank runs is evident in the fact that many of MBf Finance Berhad's 120 branches saw runs on their deposits, totalling about 17 billion Ringgit (US$4.49 billion).

In response to these crises, the Bank Negara Malaysia (the Malaysian central bank) took control of MBf Finance Berhad in 1999.

Bank runs have a long and sometimes disastrous history.

The infamous 1907 New York City bank run was triggered by a panic caused by the Knickerbocker Trust Company's financial struggles.

In the aftermath of the panic, 12 banks failed, and the Federal Reserve was eventually established to prevent similar crises.

Bank runs have occurred throughout history, causing significant disruptions to the financial system. One notable example is the 1973 Toyokawa Shinkin Bank incident in Japan, where a rumor led to a bank run in December of that year.

The 2008 financial crisis also saw extraordinary measures taken to cover all bank deposits and money-market funds. This was a critical step in maintaining stability in the banking system.

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In the United States, the Great Depression of the 1930s led to the introduction of deposit insurance by President Roosevelt in 1933. This protection has been a cornerstone of the banking system ever since.

The collapse of Silicon Valley Bank in 2023 was addressed by President Biden, who reassured Americans about the stability of the banking system. The U.S. Treasury Secretary also announced that all depositors of SVB would be guaranteed the full amount of their deposits.

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Wachovia Bank was shuttered after depositors withdrew more than $15 billion over a two-week period following negative earnings results.

Its collapse was a result of a bank run, where customers withdrew large amounts of money, drawing down balances to just below the FDIC limit.

This highlights the importance of managing daily reserves, a critical function of any bank, to prevent liquidity crises.

The bank was eventually acquired by Wells Fargo for $15 billion, a drastic measure taken to stabilize the financial system.

The FDIC limit, which protects depositors from losses, played a crucial role in the aftermath of Wachovia's collapse, as commercial accounts with balances above the limit were drawn down to just below the FDIC limit.

This episode serves as a reminder of the importance of trust in the banking system, which can be eroded by public fear and panic, leading to a bank run.

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Governments and banks have taken several steps to prevent and mitigate bank runs. The FDIC was established in 1933 to insure bank deposits, providing coverage up to $250,000 in each different ownership category.

To prevent bank runs, the Federal Reserve has reduced reserve requirements to zero, allowing banks to use other monetary policy tools. The FDIC provides insurance based on ownership category, with each depositor insured for up to $250,000 in each different category.

In some cases, banks may need to take a more proactive approach to prevent a bank run. They may temporarily close to prevent people from withdrawing their money en masse.

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The FDIC may extend its coverage in extreme circumstances, such as when Silicon Valley Bank failed in 2023. The FDIC used funds from the Deposit Insurance Fund to fully reimburse depositors.

Banks facing the threat of insolvency due to a bank run may work with authorities to access short-term liquidity or raise equity to meet demands. The ideal solution is to work with authorities to satisfy demands.

A bank may slow down a bank run by artificially slowing down the process, such as by making long queues in front of the tellers or using "technical issues" to delay or stop transactions.

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The banking system has a history of adapting to protect depositors during times of economic uncertainty. In 1933, President Roosevelt introduced deposit insurance to address the Great Depression.

The U.S. Treasury Secretary's decision to guarantee all depositors of Silicon Valley Bank would be repaid in full is a similar measure. This echoes the extraordinary steps taken during the 2008 financial crisis to cover all bank deposits and money-market funds.

The banking system's ability to learn from past crises is a testament to its resilience. By understanding the challenges faced by banks throughout U.S. history, we can better navigate the complexities of modern banking.

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A bank run is a serious situation where customers rush to withdraw their funds from a bank, often due to a loss of confidence in the bank's stability. This can lead to a bank's collapse, as seen in the case of Silicon Valley Bank in 2023.

To avoid losing money in a bank run, it's essential to understand the risks and take proactive steps. One way to do this is to keep your deposit amounts under the FDIC-insured limit of $250,000 per depositor, per insured bank. This means you can safely keep up to $250,000 in a single bank account without worrying about losing your money.

If you need to deposit more funds, consider opening an account at another bank to receive the same protection. The FDIC's insurance fund is designed to protect depositors in the event of a bank failure, so you can rest assured that your deposits are safe up to the insured limit.

Here are some key facts to keep in mind:

By being aware of the risks and taking steps to protect your deposits, you can help ensure your financial stability and security.

Historical bank failures have shown us that even in times of economic uncertainty, governments can take extraordinary measures to protect depositors. This has happened during the 2008 financial crisis, when the US Treasury Secretary guaranteed all bank deposits and money-market funds.

The Great Depression in 1933 taught us the importance of deposit insurance. President Roosevelt introduced deposit insurance to reassure the public and prevent further bank runs.

A bank's failure is often the result of insolvency, which occurs when a bank can no longer meet its obligations. This can happen when regulators are forced to intervene in a process called receivership, where the FDIC negotiates a sale to another bank or liquidates the assets to repay creditors.

Early warning signs of trouble can include factors such as a bank's inability to meet its obligations, which can be caused by a combination of factors including poor management, economic downturns, and regulatory changes.

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A bank run can push an institution into bankruptcy if the bank cannot maintain a regulatory equity requirement. This can happen when public fear and panic lead to a sudden and large withdrawal of funds, straining the bank's treasury function.

The 1933 bank holiday, where President Roosevelt shut down banks for a week to prevent further bank runs, is a notable example of how governments can take drastic measures to protect the financial system.

Declaring a national bank holiday was a key move by President Roosevelt in 1933, allowing for federal inspection of all banks to determine their solvency.

This holiday gave the government time to assess the financial health of banks and make informed decisions about which ones to support.

President Roosevelt's radio speeches in 1933 helped to restore public confidence in the banking system by assuring citizens that their deposits would be safe once banks resumed operations.

He effectively communicated that keeping money in the bank was safer than keeping it under the mattress.

The Banking Act of 1933 led to the formation of the Federal Deposit Insurance Corporation (FDIC), which was tasked with supervising and regulating commercial banks.

The FDIC's authority to provide deposit insurance helped to rebuild trust in the financial system.

To prevent triggering another bank run, the FDIC performs takeover operations behind closed doors and reopens the next business day under new ownership.

A bank run is a sudden and rapid withdrawal of funds from a bank by its customers, often due to a loss of confidence in the bank's stability. This can happen in a matter of hours or days.

The first recorded bank run occurred in 1797, during the French Revolution, when depositors withdrew their funds from the Bank of France, fearing the bank's collapse. This event led to a major financial crisis in France.

In the United States, the first bank run was recorded in 1814, during the War of 1812, when depositors withdrew their funds from the Second Bank of the United States, fearing the bank's inability to meet its obligations.

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The 2000s saw a significant shift in banking practices, with the rise of online banking and mobile banking. This made it easier for people to access their money and manage their accounts.

The first major bank run of the decade occurred in 2001, at the Bank of New York, after it was revealed that the bank had invested heavily in Enron's debt. Depositors rushed to withdraw their funds, fearing the bank's collapse.

The collapse of the housing market in 2007 led to a massive bank run, as investors lost confidence in the financial system. This was triggered by the failure of Lehman Brothers, a major investment bank.

The US government intervened, passing the Troubled Asset Relief Program (TARP) to bail out struggling banks. This helped to stabilize the financial system, but not before widespread panic and a sharp decline in stock markets.

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The 2010s saw a series of bank runs triggered by rumors and false information.

In 2011, a rumor spread via Twitter that Swedbank and SEB in Sweden were having problems, causing a lesser hysteria in Latvia. People emptied their accounts, and long lines formed at automated teller machines.

The same year, there were no reported bank runs, but it's worth noting that bank runs can happen anywhere, at any time.

On March 24, 2014, Jiangsu Sheyang Rural Commercial Bank in China suffered a three-day bank run after rumors of the bank turning down a cash withdrawal transaction emerged.

The bank's branches remained open for 24 hours to calm depositors, and tellers stacked cash behind teller windows to reassure them.

Corporate Commercial Bank in Bulgaria was put under special surveillance by the central bank after a one-week bank run triggered by an accusation of attempted murder against a media mogul and politician.

The bank stayed closed until November 6, when the Bulgarian central bank announced that Corporate Commercial Bank had accumulated massive losses and revoked its banking license.

Here are some key dates from the 2010s bank runs:

The 2020s saw a significant number of bank runs, with several notable incidents. A bank run occurred at Sberbank's branch in the Czech Republic on 25 February 2022, following the Russian invasion of Ukraine. The Czech National Bank subsequently removed the bank's license, effectively shutting it down.

The Czech Financial Market Guarantee System's deposit insurance fund guaranteed refunds on deposits up to €100,000 per account. This fund was backed by the full faith and credit of the government of the Czech Republic.

In another incident, a banking panic occurred across multiple Russian banks on 27 February 2022. This was due to sanctions against Russia and the removal of Russian banks from the SWIFT system.

A US$42 billion bank run occurred on Silicon Valley Bank on 9 March 2023. This is currently the biggest bank run in history. The bank was subsequently closed by California and United States regulators, with FDIC-insured deposits assumed by the Deposit Insurance National Bank of Santa Clara.