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During a pivotal scene in the 1946 Christmas classic "It's a Wonderful Life," a cab driver points out to passenger George Bailey—famously portrayed by Jimmy Stewart—that a bank run appears to be taking place in fictional Bedford Falls, New York. Sure enough, panicked depositors have gathered at the community bank that Bailey leads to immediately demand their money.
Even though it's a made-up event, the "It's a Wonderful Life" bank run surely ranks among the best-known bank runs in U.S. history. Generally, a bank run happens when a swarm of depositors descends on a bank or another financial institution to pull out money over fears that the institution might collapse.
Of course, bank runs also happen offscreen. In recent years, major bank runs at real-life Silicon Valley Bank and Washington Mutual Bank have rattled depositors' nerves and caused banking havoc.
What Is a Bank Run?
A bank run takes place when depositors flock at the same time to a bank or another financial institution to withdraw their money. What prompts a bank run? Typically, it's depositors' uneasiness over being able to readily withdraw money ahead of a potential bank failure.
This pandemonium can send a financial institution into a monetary tailspin. That's because financial institutions don't keep all of their depositors' cash on hand. Rather, most of this cash is tied up in profit-making products like loans, mortgages and bonds held by other bank customers.
What Causes a Bank Run?
Several factors can cause a bank run or worsen it, and bank runs can occur even when a financial institution isn't teetering on the edge of failure. Here are five of the factors that can cause or worsen a bank run:
Fear
Perhaps the biggest driver of a bank run is fear. Some customers may believe a financial institution is in trouble and worry about losing money deposited there. This fear can then spread to other customers at that financial institution or other financial institutions, triggering a wave of withdrawal demands. In other words, weakened trust in a financial institution or the banking system can lead to a bank run.
Social Media
Speculation and rumors posted on social media platforms can whip up concerns over the health of a financial institution or the banking system. For instance, messages on the social media website X (formerly known as Twitter) added fuel to the 2023 bank run at Silicon Valley Bank.
Technology
Although technology doesn't cause a bank run on its own, it can aggravate circumstances at a financial institution or within the financial system and perhaps speed up a bank run. For example, customers of the then-failing Silicon Valley Bank (SVB) made electronic transfers via the bank's app or website to quickly move their money to other financial institutions after learning of trouble brewing at SVB. This created an even faster-moving crisis.
Bank Mismanagement
In some cases, bank mismanagement might contribute to a bank run. Take Washington Mutual Bank (WaMu), for instance. In 2008, a bank run siphoned $16.7 billion from customer accounts at WaMu. While it wasn't the only factor, WaMu's profit-chasing bet on high-risk mortgages played a key role in the bank run and the bank's eventual failure.
Economic Conditions
Economic conditions can help spark a bank run. For example, tech startups dominated the customer base at SVB. When those startups ran into problems finding private funding, they tapped into their deposits at SVB, thus depleting the bank's cash reserves. That then played a major part in a subsequent bank run that drained $42 billion from customers' accounts in just one day.
Notable Examples of Bank Runs
Throughout history, the U.S. has witnessed a number of high-profile bank runs. Here are four of them.
Silicon Valley Bank
Date started: March 9, 2023
Cause: Rush by tech companies to withdraw cash after SVB sought to raise more than $2 billion in fresh capital
Amount withdrawn: $42 billion
Date bank closed: March 10, 2023
Buyer of assets: First Citizens BancShares
Signature Bank
Date started: March 10, 2023
Cause: Customers scared by sudden collapse of SVB; bank's heavy reliance on cryptocurrency-related assets
Amount withdrawn: $18.6 billion
Date bank closed: March 12, 2023
Buyer of assets: Flagstar Bank
Washington Mutual Bank
Date started: Sept. 8, 2008
Cause: Slump in economic growth and bad news from Wall Street in midst of Great Recession
Amount withdrawn: $16.7 billion
Date bank closed: Sept. 25, 2008
Buyer of assets: JPMorgan Chase
Bank of United States
Date started: December 10, 1930
Cause: Collapse of planned bank merger during Great Depression
Amount withdrawn: More than $2 million (About $36 billion in 2023 dollars)
Date bank closed: December 11, 1930. The bank's failure caused widespread distrust in the U.S. banking system, helping spark hundreds of bank runs in subsequent months.
Should I Withdraw My Money During a Bank Run?
Generally, you should feel confident about keeping your money at a bank during a bank run rather than withdrawing it. Why? Because the majority of bank deposits are federally insured up to a certain dollar amount.
The Federal Deposit Insurance Corp. (FDIC), an independent federal agency, automatically protects eligible deposits up to $250,000 per depositor, per insured bank for each account ownership category if an FDIC-insured bank fails. Types of accounts that qualify for FDIC insurance include checking accounts, savings accounts, certificates of deposit (CDs) and money market accounts.
FDIC insurance doesn't cover credit unions. The National Credit Union Administration (NCUA), also an independent federal agency, provides up to $250,000 per account holder, per ownership category, at NCUA-insured credit unions.
To limit the potential loss of money, set up accounts at FDIC- or NCUA-insured financial institutions, and be sure your deposits don't exceed insurance limits.
The Bottom Line
Typically, a bank run hits just one financial institution. However, a single bank run might help trigger bank runs at other institutions. But since the Great Depression, bank runs have been unusual, thanks in large part to federal insurance of deposits at banks and credit unions. Customers' confidence that their money is safe seems to have put a stop to bank runs like those that occurred during the Depression.