Bank Run. What is it?

In the news the past few days, you may have seen headlines with the words, “Bank Run.” Which begs the question… What is a bank run?

A bank run occurs when clients withdraw their money from a bank in fear of the bank ceasing to function in the near future. Banks do not keep a lot of cash on hand. As soon as you deposit your money into a bank, the bank immediately wants to get rid of it via loaning it out or locking it into something that will give them a higher yield than what they are offering you to keep your money there. As more people run to their banks to withdraw their cash, the bank is basically running out or being depleted of all the cash they have on hand. When this happens the likelihood of default increases. If the bank runs out of cash, this could destabilize the bank and trigger a bankruptcy.

Now that you know what a bank run is, is it important. In recent news the name “Silicon Valley Bank” has been linked with bank run. A lot of reports say that SVB is thought of as a well run institution where a lot of money is. Hence the title Silicon Valley Bank. However, after digging into this further, if this one bank is having fears of a bank run( liquidity issues) chances are numerous other banks are too, which could start to trigger alarms. Only time will tell.

What do you think is going to happen as a result of this? We would love to hear your thoughts. Comment below on the twitter thread so we can engage in conversation! Thank you as always as we strive to provide the best information we can on financial markets!