Bank run.
In plain English
A bank run happens because deposits are payable on demand while the bank's loans are not, so even a healthy bank can run out of cash if enough customers withdraw at once. Selling assets quickly to raise cash locks in losses, which can turn a liquidity problem into a solvency problem within days. Deposit insurance was created to break the logic, since an insured depositor has no reason to rush. Runs today move faster than they once did, because transfers happen in seconds and news spreads through social feeds rather than sidewalk lines. Uninsured balances and concentrated depositor bases are the usual accelerants.
01Why it matters
Knowing how insurance limits apply to your accounts, including how ownership categories work, is the difference between watching a bank failure as news and watching it as a personal loss.
02The math, step by step
Say a bank holds $10 billion of deposits and $1 billion of cash. If 15 percent of depositors withdraw in two days, that is $1.5 billion, more than the cash on hand. The bank must borrow or sell bonds, and selling $500 million at 95 cents crystallizes a $25 million loss.
Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.
03What this is NOT
A run is about timing, not necessarily about value. A bank whose assets are worth more than its liabilities can still fail if it cannot turn them into cash fast enough. Insolvency means the assets are genuinely worth less than what is owed.
04Receipts
Every figure on this page is sourced to a primary document. Tap to open the original.
Plain-English answers from our glossary. Receipts included. Never advice.
Educational tool. Answers come only from ClearMoneySchool's published glossary and are not advice. Why we never give advice