What it is
Deposit flight, also known as a bank run in its most severe form, occurs when a large number of depositors simultaneously withdraw their money from a financial institution. This can be triggered by rumors, negative news, or a perceived instability in the bank's financial health or the broader banking system. Banks typically hold only a fraction of deposits in cash, lending out the rest, so a sudden mass withdrawal can quickly deplete their liquidity and lead to insolvency.
News of deposit flight can quickly erode confidence in a bank, causing its stock price to plummet and potentially triggering broader concerns about regional banks or the entire financial system. Regulators like the FDIC monitor deposit flows closely. To stem deposit flight, central banks like the Federal Reserve may act as a lender of last resort, providing emergency liquidity to stabilize the bank, or the FDIC might step in to guarantee deposits and manage the failing institution.
Why it matters
Deposit flight signals severe stress for a bank and can threaten financial stability, potentially impacting your investments and economic confidence.
Reviewed under editorial standardsUpdated September 26, 2026Not investment advice