Bank run - Financial definition
Financial acronyms
The entire acronym collection of this site is now also available offline with this new app for iPhone and iPad.
Concise definition of the term bank run
A bank run is a situation where a huge number of almost simultaneous, unexpected cash withdrawals which may be caused by a sudden decline in depositor confidence or fear that the bank will be closed.
Comprehensive definition of the term bank run
When banks accept customers' deposits, they give in return balances in their accounts, which are equivalent to promises to pay back the deposits anytime the depositing customers want. However, when other customers borrow money from the bank, they are also given account balances, which are usually withdrawn immediately to satisfy the purpose of the loan.
This creates a situation where the bank has issued more promises to «pay on demand» than it has money to honor them with, because even if the depositing customers think they can get their money any time they want, in reality it has been given to the borrowing customers and no longer is available at the bank.
It is a fact of modern banking that promises-to-pay exceed deposits by a factor of ten to one.