Finance
How does a bank run happen?
A bank run happens when many customers rush to withdraw their money at once, fearing the bank will fail. Because banks lend out most deposits and keep only a fraction on hand, a wave of withdrawals can drain them and turn the fear into reality.
See it in motion.
Watch a 2-minute animated lesson that shows exactly how a bank run works.
Step by step
- 1Many depositors try to withdraw at once, fearing collapse.
- 2Banks hold only a fraction of deposits as cash.
- 3Mass withdrawals can drain the bank quickly.
- 4Fear can become self-fulfilling, causing failure.
Frequently asked questions
- How does a bank run happen?
- Customers panic that a bank will fail and rush to withdraw, which can drain its limited cash and cause collapse.
- Why can't a bank just give everyone their money?
- Banks lend out most deposits, keeping only a fraction on hand, so they can't repay everyone at once.
- How are bank runs prevented?
- Through deposit insurance, central-bank support, and regulations that maintain confidence.