Definition
A bank run occurs when a large number of depositors attempt to withdraw their funds at the same time, typically because they fear the institution may become insolvent. Because banks operate on a fractional reserve basis and keep only a small portion of deposits as cash, a sufficiently large, simultaneous demand for withdrawals can exhaust available liquidity and force the bank to sell assets at a loss or fail outright.
The self-fulfilling dynamic
Bank runs are often self-reinforcing. A rumor, a credit downgrade, or visible queues can convince otherwise-secure depositors that they must withdraw first to avoid being last in line. Even a fundamentally solvent bank can be toppled if enough customers act on this incentive at once, because its assets (loans, bonds) cannot be liquidated quickly enough to meet immediate cash demands. When the panic spreads across multiple institutions it becomes a systemic banking crisis.
Modern speed
Historically a run meant physical lines at a teller window. Digital banking has compressed the timeline dramatically: deposits can now leave an institution in minutes through online transfers, as seen in several 2023 bank failures. Deposit insurance and central-bank liquidity facilities exist to dampen runs, but coverage limits mean uninsured balances remain exposed.
For the structural reason runs are possible, see Fractional Reserve Banking, and for one official backstop, see Lender of Last Resort.
In Simple Terms
A bank run occurs when a large number of depositors attempt to withdraw their funds at the same time, typically because they fear the institution…