CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 78.1% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
US English

What is a bank run?

Bank run

This is when a large amount of customers withdraw cash from the same bank at the same time because of rumours of the bank’s instability. Despite the validity of these rumours, the chain reaction caused by so many withdrawals actually increases the bank’s likelihood of bankruptcy.

Where have you heard about bank runs?

During the Great Depression there were many bank runs, causing banking crises. Certain states had laws that permitted the opening of only a single bank branch, so when customers decided to withdraw their capital, these lone branches ran out of money quickly.

What you need to know about bank runs.

Bank runs that happen to many banks at the same time are called banking panics and most of the recessions that have occurred in the United States have been because of them. Most developed countries use a system called fractional reserve banking, where only a tiny amount of money is reserved for demand deposits in cash. When this supply runs out it scares customers because they can't have immediate access to their money in cash. This then causes more customers to withdraw money from the bank, which in turn leaves the bank more unstable and increases the likelihood of bankruptcy.

Find out more about bank runs.

Find out how bank runs and banking panics have helped to cause recessions.

Related Terms

Latest video

Latest Articles

View all articles

Still looking for a broker you can trust?

Join the 610,000+ traders worldwide that chose to trade with

1. Create & verify your account 2. Make your first deposit 3. You’re all set. Start trading