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.
Related or Semi-related Video
Finance: What Is Retail Banking vs. Corp...2 Views
Finance allah shmoop what is retail banking versus corporate banking
Retail consumer this gal she wants alone for her car
a credit card someday a mortgage corporate banking corporate The
corporation the behemoth the beast needing three billion dollars to
build a battery manufacturing facility in the middle of the
desert The beast needing fourteen thousand bank accounts into which
to deposit bi monthly paychecks The global animal that demands
banking contacts in at least eighty seven countries and in
somalia Retail banking savings and loans Little local banks Friendly
cashiers that air human checking accounts Savings accounts deposit boxes
twenty five for your hondo friendly smiling tellers who know
your name Corporate banking different from investment banking The glass
steagall act in nineteen thirty three force the separation of
the two because well let's be honest There was just
too much insider trading and collusion among you Are we
right Are we right Yeah Cash management equipment leasing lines
of credit Fairness opinions factor receivables payroll retirement investment management
brokerage Yeah these corporate bankers these air the nameless faceless
men in the gray flannel suits seeking to be in
the room for the twelve angry white men in a
ludlum novel hoping teo you know take over the world
Up Next
What is a Banker’s Acceptance Note? Banker’s acceptance notes are short-term debts that companies can issue; they differ from general debt offe...
What is a merchant bank, and how many duck puns do we make in this video? Watch it for the answers to both those hard-hitting questions.
What is a savings & loan versus a bank? Hit play to find out.