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Understanding Bank Runs: Causes, Examples, and What to Do

In this article, we will explore the concept of bank runs, their causes, notable examples, and whether you should withdraw your money during such events. If you have any mortgage service needs, feel free to call O1ne Mortgage at 213-732-3074. We are here to help you with the best mortgage solutions.

What Is a Bank Run?

A bank run occurs when a large number of depositors simultaneously rush to withdraw their money from a bank or financial institution due to fears that the institution might collapse. This panic can lead to a financial crisis as banks typically do not keep all depositors’ cash on hand, with most of it 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 perhaps the most significant driver of a bank run. When customers believe a bank is in trouble, they may rush to withdraw their money, causing a ripple effect among 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. Electronic transfers and online banking can quickly deplete a bank’s reserves, as seen during the Silicon Valley Bank crisis.

Bank Mismanagement

Mismanagement can also play a role. For instance, Washington Mutual Bank’s risky mortgage investments contributed to its 2008 bank run and eventual failure.

Economic Conditions

Economic downturns can trigger bank runs. For example, tech startups withdrawing funds from Silicon Valley Bank during a funding crisis led to a significant bank run.

Notable Examples of Bank Runs

Throughout history, the U.S. has experienced several high-profile bank runs. Here are a few notable examples:

Silicon Valley Bank

Date started: March 9, 2023
Cause: Tech companies withdrawing cash after SVB sought to raise 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Amount withdrawn: $42 billion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’ fear after SVB’s collapse and reliance on cryptocurrency 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Amount withdrawn: $18.6 billion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
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 (about $36 billion in 2023 dollars)
Date bank closed: December 11, 1930

Should I Withdraw My Money During a Bank Run?

Generally, it is 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. Similarly, the National Credit Union Administration (NCUA) provides insurance for credit union deposits.

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

The Bottom Line

While bank runs can be alarming, they are relatively rare today due to federal insurance of deposits. This insurance has helped maintain customer confidence and prevent widespread bank runs like those seen during the Great Depression.

If you have any mortgage service needs, don’t hesitate to contact O1ne Mortgage at 213-732-3074. We are committed to providing you with the best mortgage solutions.

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