Facebook Twitter Instagram
    Facebook Twitter Instagram
    Marketing2BusinessMarketing2Business
    • Definitions
    • Marketing
    • Business
    • SEO
    • Digital Agencies
    • Advertisement
    Marketing2BusinessMarketing2Business
    Home » Business » Bank Run? Definition, Causes, Effects, Measures to Prevent
    Business

    Bank Run? Definition, Causes, Effects, Measures to Prevent

    marketing2businessBy marketing2businessMarch 20, 2020Updated:December 25, 20222 Comments5 Mins Read
    Facebook Twitter Pinterest LinkedIn Tumblr WhatsApp Email
    what is bank run
    Share
    Facebook Twitter LinkedIn WhatsApp Pinterest Email

    Table of Contents

    • What is a bank run?
    • Causes of a Bank Run
    • Effects of a Bank Runs
    • Measures to prevent a bank run
      • These measures include:
    • The following are some of the best-known examples of a bank run:

    What is a bank run?

    A  bank run occurs when clients panic and worry that their bank is going bankrupt, the loss of funds they deposited. In a run on the bank situation, customers withdraw their savings, all within a very narrow time frame ( a few days). Although the bank may not have been insolvent at the beginning of a bank run, a run against the bank may precipitate bankruptcy.

    Bank Run

    In fact, like the bank run, it spreads with more and more clients and customers losing confidence. At some point, the bank reserve is not able to satisfy all withdrawal requests, and therefore, the bank becomes insolvent. During the Great Depression, a national bank career has been characterized by clients physically queuing at their bank to withdraw their money.

    With the opportunity of online transactions, a bank run on the bank can start with clients/institutions transferring funds to other banks or financial institutions that they believe are less likely than the default. Such a term on the bench is called a silent run on the shore.

    Specific government actions can mitigate a bank run (i.e., increased  FDIC  deposit insurance limits, new bank regulation, increased reserve requirements, monetary bailout). A career in the bank is also called a bank run.

    Causes of a Bank Run

    A bank run can have various causes, below are some of the most relevant:

    • Serious economic crisis: In some cases, there may be fear that the State will intervene with banks by freezing their assets )
    • Political crises: They lead to a loss of credibility of government bonds and the withdrawal of foreign investment
    • Bad management of private banks: It can be for several reasons, such as excessive risk-taking, poorly diversified portfolios, etc.
    • Speculative bubbles coming to an end: Overvaluation of assets becomes evident, and when they explode, there is a bank Run.
    • Bankruptcy Issues: Many times, we often forget that banks too are private entities run by boards, directors and other entities. This means that they too are subject to bad management and policies. In all such cases, experts should always handle bankruptcy legal questions.

    Effects of a Bank Runs

    A first effect of the bank run is the destabilization of the affected banks. In the modern banking system, banks do not keep all deposits received in cash (money or coins), but only a part of them along with cash forecasting. With the remaining part, operations are carried out that allows them to make a profit (they make loans, make investments, etc.).

    In this way, if all the clients come at the same time to request their money, the bank will not be able to respond to all of them, thus reinforcing the fear that when the client arrives, there will be no resources left.

    A second effect of the bank run is longer term and is the general distrust in the banking system and its subsequent destruction.

    This has very adverse effects on the economy, growth and investment stagnate, unemployment increases, and the country is plunged into an economic crisis that can spread to the political and social sphere.

    Measures to prevent a bank run

    Governments can take some steps to prevent bank run from arising or prospering.

    These measures include:

    • Temporary suspension of bank withdrawals: This is to prevent people from acting rashly and all running at the same time to take out their deposits. The temporary suspension is often called a playpen.
    • Banking regulation: That prevents banks from being mismanaged and putting the credibility of the system at risk.
    • Lender of last resort: The Central Bank can act as lender of last resort to guarantee clients that their money will be return
    •  Creation of guarantee funds: These are funds that can use if clients demand the return of their resources, and their bank has declared bankruptcy.

    The following are some of the best-known examples of a bank run:

    • October 24, 1929 – USA: Victim of massive sales of shares, the New York Stock Exchange collapses. Faced with significant losses but also the insolvency of thousands of bankrupt savers, US banks are weakened. Savers turn to agencies to withdraw their savings. The New York Federal Reserve intervenes and prevents the implosion of the banking system. But the crisis continues, and between 1929 and 1933, about 40% of North American banks cease their activity. Since the deposits were not insured, some clients lose everything.
    • August 1998 – RUSSIA: The fall of the ruble and the collapse of high-yield Treasury bonds (GKO), suddenly rejected by foreign investors, expose the risky management of Russian banks. Many clients withdraw their money. Dozens of banks disappear, and they sink the savings of individuals.
    • November 30, 2001 – ARGENTINA: In an economic recession for three years, the country has chained austerity plans and loses control of its external debt. Fearful of a freeze on bank assets by the state, thousands of customers go to banks to withdraw their money, more than $ 1 billion in total on November 30 alone. From the following day, to avoid a collapse of the economy, the government imposes a ceiling of 250 dollars or pesos (both were tied equally by the Convertibility law) per week and per account for liquidity withdrawals. Violent protests erupt on December 19, and the government declares a state of siege.
    • January 5, 2006 – TAIWAN: The industrial conglomerate Rebar announces the suspension of payments of two of its subsidiaries, and causes the concern of the clients of another subsidiary, Chinese Bank, who are making massive withdrawals of some 15,000 million Taiwanese dollars ( ? 300 million). The government decides to assume control of the bank that same night, refloats it, and puts an end to the mistrust of savers. The president and founder of the conglomerate are on the run in the United States.
    Share. Facebook Twitter Pinterest LinkedIn Tumblr WhatsApp Email
    marketing2business

    Related Posts

    Things To Consider When Planning to Get An MBA Degree

    January 26, 2023

    Different Ways That Manufacturing Businesses Can Market Themselves

    January 20, 2023

    Mistakes To Avoid When Choosing Training On Sexual Harassment

    January 16, 2023

    What is content personalisation, and how can you leverage it in your overarching strategy?

    January 12, 2023

    What is the Distinction between an ISA and a Savings Account in Singapore?

    January 10, 2023

    Shipping To Amazon FBA Rapid Express Freight And More

    January 3, 2023
    View 2 Comments

    2 Comments

    1. Harrison Munshower on April 9, 2020 4:47 pm

      Hi. I’m glad he found marketing2business.com website,
      I really like it, the article is very useful and I shared it!
      In order to survive the hard times ahead we found 2 very good books,
      Great success with this site!

      Reply
    2. blog3 on April 12, 2020 11:43 pm

      Spot on with this write-up, I honestly believe this amazing
      site needs a great deal more attention. I’ll probably be returning to
      see more, thanks for the information!

      Reply

    Leave A Reply Cancel Reply

    Recent Post

    Things To Consider When Planning to Get An MBA Degree

    Education

    Things To Consider When Planning to Get An MBA Degree – Whether you are looking…

    Factors to Consider When Getting a Personal Loan

    January 23, 2023

    Different Ways That Manufacturing Businesses Can Market Themselves

    January 20, 2023

    Seven Ways That Going Back To School Can Boost Your Business Career

    January 19, 2023

    5 Promo Gifts Perfect for Restaurant Marketing Campaigns

    January 18, 2023

    Mistakes To Avoid When Choosing Training On Sexual Harassment

    January 16, 2023
    Popular Post

    6 Reasons Why Security Alarms are a Necessity at Your Workplace

    December 6, 2019

    The Right Mindset and Strategy: 10 Important Lessons for Every Startup to Remember

    April 23, 2022

    Cloud Based Phone System for Business

    September 27, 2019

    Essentials for Anyone Beginning a Career in Professional Real Estate Sales

    September 2, 2021

    5 Ways Your Business can Utilise a Company Brochure

    April 25, 2022

    Finding Your ‘Purpose’ In Business As An Entrepreneur

    April 28, 2022

    What is [Pii_Email_029231e8462fca76041e] and How to Fix [Pii_Email_029231e8462fca76041e] Error Code? – [Solved]

    September 18, 2020

    Things to Check When Deciding on the best Moving Company!!!

    January 20, 2022

    Here Are Stress Management Tips for People Who Own Small Businesses

    August 26, 2022

    Location Independent Living Is More Feasible Today Than Ever

    November 1, 2019

    Subscribe to Updates

    Get the latest post from Marketing 2 Business about definitions, marketing, business, seo, digital agencies and advertisement.

    About Us
    About Us

    Marketing2business provides brand management solutions. We are committed to bringing ideas, inspiration, strategy, and tools to help our customers grow their business and achieve success.

    Recent Post

    Things To Consider When Planning to Get An MBA Degree

    January 26, 2023

    Factors to Consider When Getting a Personal Loan

    January 23, 2023

    Different Ways That Manufacturing Businesses Can Market Themselves

    January 20, 2023
    Random Post

    Modern Challenges for Digital Marketers

    December 13, 2021

    How to Protect a Business from Dram Shop Laws

    February 24, 2021

    14 Tools To Create Free Timeline Software

    April 20, 2022
    Facebook Twitter Instagram
    • About Us
    • Blog
    • Contact Us
    • Advertisement
    • Privacy Policy
    © 2023 All Rights Reserved by Marketing 2 Business.

    Type above and press Enter to search. Press Esc to cancel.