Definition
Bank Run occurs when a large number of bank depositors simultaneously attempt to withdraw their funds due to fears of the bank’s insolvency. This sudden rush can threaten the bank’s liquidity and potentially cause wider financial instability.
Why It Matters
Bank runs can quickly escalate into banking crises if not managed, undermining confidence in financial institutions and prompting regulatory intervention. Understanding bank runs is crucial for banking regulation, risk management, and economic stability.
Example
During a financial panic, depositors may line up to withdraw cash from a bank, fearing that it will collapse. Even if the bank is solvent, the sudden demand for cash can force it to sell assets at a loss, potentially leading to actual insolvency.