Silent Bank Run

Bank runs led to the creation of the Federal Reserve. It’s why we make banks fulfill reserve requirements, which means they can’t lend out all of their money. They have to keep a certain percentage liquid and on-hand. Because people want to take their deposits out of the bank...not just put them in the bank for the bank to lend.

A bank run occurs when there’s a rush of people to withdraw all of their money from their bank accounts. Since banks make money from lending it out to others, well...they don’t have the capacity to pay everyone at a moment's notice. So if all the depositors are demanding their deposits at the same time...that’s a problem.

Bank runs (back in the day, when they were more of an issue) happened in-person, on-foot, brick 'n' mortar style. Today, eh...why go to the bank when you could just deposit that check with your phone? You almost never need cash anyway, and when you do, you can just go to the nearby ATM.

Silent bank runs are new given today’s tech. Silent bank runs are just like normal bank runs, except they happen online via electronic and wire transfers. It’s silent, because it’s kind of a meltdown (as bank runs tend to be), but it’s kind of invisible. The banks see it happening on their computer screens, and consumers on the caboose of the bank run train will notice...but there just isn’t the mosh-pit scene there used to be. (Fwiw, the FDIC insures your accounts up to $100k if your bank fails to pay up.)

Thanks to big banks being irresponsible with mortgage-backed securities, leading to the 2008 financial crisis and the following Great Recession, silent bank runs happened. This makes sense given that markets also crashed, implying a sell-off. Everyone’s collecting all their money...taking it out of banks, out of the stock market. Protectionism time.