What is meant by a ‘bank run’?

A bank run occurs when a large number of customers withdraw money from their accounts simultaneously, fearing that the bank may collapse. This creates a big problem for the institution, because mostly it keeps only a small fraction of its deposits as cash on hand.

Economists note that as a bank run progresses, it generates a momentum. More and more customers withdraw cash. Such situations can arise even from small rumours about bank collapse. In the worst case, the bank’s reserves will turn insufficient to cover the mass withdrawal. The bank is then destabilized and faces bankruptcy.

The Great Depression contained several banking crises, consisting of runs on multiple banks from 1929 to 1933.

Whenever a bank runs, people in other banks too start withdrawing money. On a large scale, this can affect the country. So, governments all over the world have taken measures to avoid this danger.