Get 25% off Blinkist premium and enjoy 2 memberships for the price of 1! Start your 7-day free trial by clicking here: or scanning the QR code.

Banks don’t fail very often, and bank runs appear to be mostly a thing of the past. The last bank failure in the United States happened in 2020 when a small bank in Kansas failed. That two-year streak was broken this Wednesday with the failure of the crypto focused bank Silvergate, and on Friday with the failure of Silicon Valley Bank.

Patrick’s Books:
Statistics For The Trading Floor:
Derivatives For The Trading Floor:
Corporate Finance:

Patreon Page:

Visit our website: www.onfinance.org
Follow Patrick on Twitter Here:

Patrick Boyle On Finance Podcast:
Spotify:
Apple:
Google Podcasts:

Join this channel to support making this content:
…(read more)

LEARN MORE ABOUT: Bank Failures

REVEALED: Best Investment During Inflation

HOW TO INVEST IN GOLD: Gold IRA Investing

HOW TO INVEST IN SILVER: Silver IRA Investing

Bank Runs! What’s Going On?

A bank run occurs when a large number of customers withdraw their deposits from a bank due to concerns about the bank’s solvency. This can create a self-fulfilling prophecy, as the mass withdrawals may indeed lead to the bank’s insolvency. Bank runs have been a significant concern for banks and financial institutions for centuries, but they became particularly prominent during the Great Depression in the 1930s.

In recent years, bank runs have become less common due to the implementation of deposit insurance and other safeguards. However, they still represent a serious threat to the stability of the financial system, especially in countries with less developed banking infrastructure.

So, what causes bank runs? There are several factors that can contribute to a bank run. One of the main reasons is a lack of confidence in the bank’s financial health. If customers believe that the bank is at risk of failing, they may rush to withdraw their deposits before the bank collapses.

Another factor that can trigger a bank run is negative rumors or news about the bank’s stability. In today’s digital age, news of a bank’s financial troubles can spread rapidly through social media and other channels, leading to panic among customers.

Additionally, economic and financial crises can also lead to bank runs. During times of economic uncertainty, customers may become more cautious about the safety of their deposits and may choose to withdraw their funds from banks.

So, what can be done to prevent bank runs? The most effective way to prevent bank runs is to ensure that banks are well-capitalized and financially sound. This includes implementing strict regulatory oversight and conducting regular stress tests to assess a bank’s ability to withstand economic shocks.

Deposit insurance also plays a crucial role in preventing bank runs. By guaranteeing deposits up to a certain amount, deposit insurance helps to reassure customers that their funds are safe even in the event of a bank failure.

In conclusion, while bank runs have become less common in recent years, they still represent a significant threat to the stability of the financial system. Ensuring that banks are well-capitalized, implementing strict regulatory oversight, and providing deposit insurance are all crucial steps in preventing bank runs and maintaining public confidence in the banking system.