What it is
A bank run is a crisis of confidence where numerous depositors rush to withdraw their funds from a bank because they believe the institution may become insolvent. Since banks operate on a fractional reserve system, lending out most of their deposits, they do not have enough cash on hand to satisfy all withdrawal requests at once. This panic-driven behavior can quickly deplete a bank's liquidity, potentially forcing it into failure even if it was otherwise solvent.
News of a bank run can trigger widespread panic, leading to deposit flight in other regional banks or the broader financial system. To prevent or halt a bank run, governments and central banks, like the Federal Reserve, may provide emergency liquidity through the discount window, or the FDIC may step in to guarantee deposits and reassure the public. Historically, bank runs have led to financial crises, making regulatory responses critical for market stability.
Why it matters
Bank runs are critical indicators of financial instability and can lead to wider economic crises. They directly impact confidence in the banking system.
Reviewed under editorial standardsUpdated September 26, 2026Not investment advice