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Bank Run

Definition

A bank run occurs when a large number of depositors withdraw their money from a bank due to concerns about the bank's solvency or stability. This can lead to a liquidity crisis for the bank, making it difficult for them to meet the demands of all depositors.

Analogy

Imagine you're at a party and suddenly everyone starts rushing towards the exit at the same time because they heard there might be an emergency. People start panicking and pushing, wanting to get out as quickly as possible. Similarly, in a bank run, depositors panic and rush to withdraw their money before the bank collapses.

Related terms

Solvency: The ability of a bank or any institution to meet its long-term financial obligations.

Liquidity Crisis: A situation where an individual or entity does not have enough cash or easily convertible assets to meet short-term financial obligations.

Deposit Insurance: A system in which deposits made by individuals in banks are insured against loss up to a certain amount per depositor by the government or another agency.