Glossary · Money and central banks

Bank run

A bank run is when many depositors rush to take their money out of a bank at once, fearing it will fail, which can make it fail.

Also called: run on the bank, bank panic, deposit run

In plain words

A bank holds $100 of its neighbors’ deposits. It keeps $10 as cash and has lent $90 to people buying houses and running shops. On a normal day a few people take out a few dollars, and the $10 is plenty. Then a rumor spreads that the bank is in trouble.

Everyone rushes in at once, because whoever comes late may get nothing. The bank cannot call back 30-year mortgages by lunchtime, and when the $10 is gone it has to close its doors, even if its loans were good. That is a bank run: a fear that makes itself come true.

Runs used to be common. Today deposit insurance and central banks lending to banks in trouble make them rare, but not impossible, especially now that money can be moved with a tap on a phone.

The run in one picture: the cash is a slice, the loans cannot be called back today, and the queue grows with every rumor.

Example

How fast a run can go: Silicon Valley Bank, March 2023

SVB had grown fast on deposits from tech start-ups, most of them far above the $250,000 insurance limit, and had put much of the money into long-term bonds whose prices fell as interest rates rose.
On March 8, 2023 it announced a loss on selling bonds and a plan to raise new capital.
On March 9 depositors pulled out $42 billion, about a quarter of the bank’s deposits, in a single day, much of it through apps and online banking.
On the morning of March 10 regulators closed the bank. Two days later the government guaranteed all its deposits, insured or not.

One of the largest bank failures in US history took less than 48 hours.

One level deeper

In the US, waves of runs hit in 1873, 1893, 1907 and, worst of all, in 1930–1933, when thousands of banks failed and depositors lost their savings; that disaster led to federal deposit insurance in 1934. The classic model of runs, by Douglas Diamond and Philip Dybvig in 1983, shows that a run can sink a perfectly sound bank simply because each depositor fears the others will run. It earned them a share of the 2022 Nobel prize in economics.

Runs are not only on banks. In September 2008 investors ran on money market funds after one “broke the buck”, and on the short-term lending that investment banks lived on. In 2007 Britain’s Northern Rock suffered the first run on a British bank in over a century, with queues outside its branches.

What stops a run: insurance, so small depositors have no reason to rush; a central bank lending freely to sound banks against good collateral; and capital and liquidity rules that keep banks able to pay. Large uninsured deposits, as at SVB, remain the weak spot.

Why it matters

A run can sink a healthy bank, and one bank’s failure can spark runs on others, turning a scare into a financial crisis.

It explains why deposit insurance, central bank lending and bank rules exist, and why governments sometimes guarantee all deposits in a crisis.

It shows why the insurance limit matters: insured money is safe even if the bank fails.

A common mistake

Myth: Only badly run, bankrupt banks suffer runs.

In fact: A run is about cash, not only losses: a bank with good loans can still be forced to close if everyone wants their money on the same day. That is exactly why central banks act as lenders of last resort.

Questions people ask

What causes a bank run?

Fear that a bank will fail, from news of losses, rumors or failures of other banks. Because banks keep only a fraction of deposits as cash, the fear itself can make the bank run out of money.

Can a bank run still happen today?

Yes, though rarely to insured depositors. In March 2023 Silicon Valley Bank lost about a quarter of its deposits in one day, and in Switzerland Credit Suisse had to be taken over by UBS after months of outflows.

Is my money safe if my bank fails?

In the US, deposits up to $250,000 per depositor, per insured bank, per ownership category (the limit as of 2026) are guaranteed by the FDIC (at credit unions, by the NCUA), and no one has lost a cent of insured deposits since the FDIC began in 1934. In the EU the standard guarantee is €100,000 per depositor per bank.

About the numbers

This page explains a term. It is not investment advice.