Bank Run: Causes, Famous Examples & Modern Protections

Understanding a Bank Run

A bank run occurs when a large number of depositors rush to withdraw their money simultaneously because they believe the institution may become insolvent. Since banks lend out most of their deposits, they rarely keep enough cash on hand to satisfy everyone at once, so panic can create the very insolvency depositors fear.

Key Causes

Rumors about a bank’s financial health, negative earnings reports, or wider economic crises can spark a run. Social media, 24-hour news, and fast electronic transfers now spread fear in seconds, accelerating withdrawals far faster than in previous generations. Because confidence is the core asset of any bank, even inaccurate information can trigger damaging herd behavior.

Famous Historical Examples

The Great Depression saw thousands of U.S. banks collapse after successive runs in 1930-1933. More recently, the 2007 run on Northern Rock in the United Kingdom marked the first British bank run in 150 years, while Silicon Valley Bank’s 2023 collapse illustrated how online banking can drain billions in hours. Each episode underscores the speed at which trust can evaporate.

Modern Safeguards

Deposit insurance schemes such as the FDIC in the United States or the FSCS in the U.K. guarantee deposits up to a set limit, sharply reducing the incentive to flee at the first sign of trouble. Central banks also act as lenders of last resort, providing emergency liquidity to solvent institutions. Additionally, stress tests and stricter capital requirements aim to fortify balance sheets before panic erupts.

What Savers Should Do

Verify that your deposits stay within insured limits, diversify accounts across well-capitalized banks, and monitor official regulator statements rather than social media rumors. While no system is foolproof, today’s protections mean that calmly staying informed is often safer than joining a sudden stampede.