Last Updated on: 26th September 2020, 01:41 pm
A bank run takes place when a bank’s depositors try to withdraw all their money as they worry about the bank’s stability. This usually happens when depositors realize that their money is parked in a bank that is heavily exposed to bad debt, when credit rating agencies downgrade the bank’s standing, or when the bank is rumored to be close to bankruptcy.
As more people demand to withdraw their money, their fear becomes a self-fulfilling prophecy as banks reserves are usually not filled with enough cash to cover sudden and massive withdrawals. Eventually, this could push the bank closer to insolvency and increase the likelihood of default.
Vincent Nyagaka is a Professional Trader, Analyst & Author. He has been actively engaged in market analysis for the past 7 years. He has a monthly readership of 100,000+ traders and has taught over 1,000 students since 2014. Vincent is also an experienced instructor and public speaker. Check out Vincent’s Professional Trading Course here.