A Bank Run occurs when a large number of customers of a bank or other financial institution withdraw their deposits simultaneously over concerns of the bank's solvency. As more people withdraw their funds, the probability of default increases, prompting more people to withdraw their deposits. In extreme cases, the bank's reserves may not be sufficient to cover the withdrawals.Bank runs are often caused by rumors about a financial institution's solvency. For example, if depositors believe that a bank is in danger of failing, they may start withdrawing their money en masse in an attempt to protect themselves from losing it all. A panic can also ensue if customers become concerned that the institution does not have enough liquid assets on hand to meet withdrawal demands.Bank runs can have serious consequences for both banks and consumers alike. For banks, a run can lead to bankruptcy if too many depositors demand their money at once. This could potentially leave consumers with no way to access their funds or cash out any investments they hold with that particular financial institution. Additionally, even healthy banks may experience liquidity problems during a run as they scramble to meet customer demands for cash; this could lead interest rates on loans and mortgages offered by those institutions skyrocket as well as cause disruptions in credit markets overall.
