The Silicon Valley Bank bank run that took place recently was far from the only run on a bank to ever occur in the U.S. But according to House Financial Services Chair Patrick McHenry, it was “the first Twitter-fueled bank run” to ever hit the country.
The hope is that the SVB bank run will be the last bank run Americans have to deal with for a little while. But even if that doesn’t end up being the case, it would still be worth learning more about what a run on a bank is.
We’ve put together a brief explainer that’ll help you make sense of what a bank run is and what causes one. Continue reading to discover more about bank runs.
What Is a Run on a Bank?
A run on the bank takes place when a large number of bank depositors visit a bank at one time and start withdrawing money. This will often lead to more people rushing down to a bank to make bank withdrawals, and before long, a bank is out of money.
Contrary to popular belief, banks don’t just take your money and lock it up for you until you need it. They will often use their cash reserves to extend loans to people and to find other ways to make money off the money you give to them.
This isn’t necessarily a bad thing since it’s how banks are able to do business in the first place. But if there is ever a run on a bank, a bank could end up going out of business without enough bank liquidity.
What Causes a Bank Run?
A run on a bank can be caused by any number of things. But more often than not, bank runs will take place when rumors begin to spread about a bank’s solvency.
When this happens, a few people might start to trickle into a bank and make large withdrawals. Others will then see what these people are doing and follow their lead. That can sometimes lead to even more people joining the fray and causing panic.
The Silicon Valley Bank bank run was referred to as “the first Twitter-fueled bank run” in part because of SVB’s close ties to the technology industry. But it was also called that because much of the panic surrounding it took place on social media.
How Can You Protect Yourself From a Bank Run?
There are a few things you can do to protect yourself from a run on a bank. First and foremost, you can open up a banking account at a bank that is a household name. These banks will often be the most stable and the least likely to experience bank runs.
You might also want to visit an ATM and take out just a little cash to keep at home. In the event of a run on a bank, you’ll enjoy the peace of mind that will come along with having enough cash to cover emergency expenses before things calm back down.
Avoid a Run on a Bank at All Costs
A run on a bank can be a very scary thing. People aren’t always sure whether they’ll be able to get access to all the bank withdrawals they made over time.
Now that you know more about bank runs and all that they entail, you should actively try to steer clear of ever being involved in one. You should also hang onto some cash at home just in case you can afford to do it.
Look for an ATM that’ll help you obtain cash in your area now.