The Anatomy of a Bank Run: What You Need to Know

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What Is a Bank Run?

A bank run occurs when a large number of depositors simultaneously withdraw their money from a bank or financial institution due to fears that the institution might collapse. This panic can cause significant financial instability because banks typically do not keep all depositors’ cash on hand; much of it is invested in loans, mortgages, and bonds.

What Causes a Bank Run?

Several factors can trigger or exacerbate a bank run, even if the financial institution is not on the brink of failure. Here are some key causes:

Fear

Fear is often the primary driver of a bank run. If customers believe a bank is in trouble, they may rush to withdraw their money, which can then spread panic to other customers and institutions.

Social Media

Speculation and rumors on social media can amplify concerns about the health of a financial institution. For example, messages on social media contributed to the 2023 bank run at Silicon Valley Bank.

Technology

While technology itself doesn’t cause bank runs, it can accelerate them. For instance, customers of Silicon Valley Bank quickly moved their money electronically, worsening the crisis.

Bank Mismanagement

Mismanagement can also play a role. Washington Mutual Bank’s focus on high-risk mortgages contributed to a bank run that saw $16.7 billion withdrawn in 2008.

Economic Conditions

Economic downturns can trigger bank runs. For example, tech startups at Silicon Valley Bank withdrew funds when they faced funding issues, leading to a $42 billion bank run in one day.

Notable Examples of Bank Runs

Here are some significant bank runs in U.S. history:

Silicon Valley Bank

Date started: March 9, 2023
Cause: Tech companies rushed to withdraw cash after SVB sought to raise over $2 billion in capital
Amount withdrawn: $42 billion
Date bank closed: March 10, 2023
Buyer of assets: First Citizens BancShares

Signature Bank

Date started: March 10, 2023
Cause: Customers were alarmed by the sudden collapse of SVB and the bank’s reliance on cryptocurrency-related assets
Amount withdrawn: $18.6 billion
Date bank closed: March 12, 2023
Buyer of assets: Flagstar Bank

Washington Mutual Bank

Date started: September 8, 2008
Cause: Economic slump and bad news from Wall Street during the Great Recession
Amount withdrawn: $16.7 billion
Date bank closed: September 25, 2008
Buyer of assets: JPMorgan Chase

Bank of United States

Date started: December 10, 1930
Cause: Collapse of a planned bank merger during the Great Depression
Amount withdrawn: More than $2 million (approximately $36 billion in 2023 dollars)
Date bank closed: December 11, 1930. This failure caused widespread distrust in the U.S. banking system, leading to numerous subsequent bank runs.

Should I Withdraw My Money During a Bank Run?

Generally, it’s advisable to keep your money in the bank during a bank run rather than withdrawing it. Most bank deposits are federally insured up to a certain amount. The Federal Deposit Insurance Corp. (FDIC) insures eligible deposits up to $250,000 per depositor, per insured bank, per account ownership category. This includes checking accounts, savings accounts, certificates of deposit (CDs), and money market accounts.

Credit unions are not covered by FDIC insurance but are insured by the National Credit Union Administration (NCUA) up to $250,000 per account holder, per ownership category.

To minimize potential losses, ensure your accounts are at FDIC- or NCUA-insured institutions and that your deposits do not exceed the insurance limits.

The Bottom Line

Bank runs typically affect individual financial institutions, but a single bank run can sometimes trigger runs at other institutions. Since the Great Depression, bank runs have become rare, largely due to federal deposit insurance, which has bolstered customer confidence in the safety of their money.

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