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Run

A run is a sudden and overwhelming demand by depositors to withdraw their cash from a bank.

Expanded Definition

A bank run typically occurs when depositors fear that the bank holding their money might become insolvent, and thus unable to return the depositor's cash on demand. In many instances, the bank run becomes self-fulfilling, as banks are not set up to withstand such an event if it becomes too pronounced. This is because banks do not hold a depositor's entire cash deposit in the vault of the institution. Banks make a portion of their profit by leveraging the money deposited by using it to fund loans.

A bank is considered well-capitalized if it holds only a small portion of total assets in cash. Therefore, in the event of a bank run, the amount of deposits that account-holders seek to redeem can very quickly overwhelm a bank's ability to fund those redemptions. This, in turn, can cause the bank to realize the insolvency that was feared.

Since the creation of The Federal Deposit Corporation, no insured deposits (currently the first $100,000 on deposit) have been lost due to a bank failure. The FDIC was created to help avert bank runs by giving a sense of security to depositors regarding the safety of their money on deposit with an FDIC-insured institution.

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