bankrun

What Is a Bank Run?

A bank run occurs when a large number of depositors simultaneously withdraw their funds within a short period, exceeding the bank’s available cash reserves and triggering a liquidity crisis. Rather than being a singular event, bank runs result from a combination of information flow, depositor confidence, and asset structure.

In practice, banks convert most deposits into loans or purchase bonds, maintaining only a fraction of cash for daily withdrawals. If many customers request withdrawals at once, banks must rapidly liquidate assets, often at a loss, amplifying financial risk.

Why Do Bank Runs Occur?

Bank runs are typically triggered by negative news, declining trust, or shifts in market conditions. Common causes include drops in asset value, the spread of rumors, large depositors moving funds, and rising interest rates causing bond losses.

A notable example occurred in March 2023, when Silicon Valley Bank in the United States faced billions in withdrawal requests within a single day. Social media accelerated the dissemination of information, resulting in an unprecedented pace of withdrawals. These cases underscore the critical importance of “speed and confidence” for banking stability.

How Do Bank Runs Work?

The mechanics behind bank runs are rooted in “fractional reserve banking” and “liquidity mismatch.” Fractional reserve means banks retain only a small portion of deposits as cash, investing the remainder in loans and bonds. Liquidity refers to how quickly assets can be converted to cash; if assets must be sold at steep discounts to raise cash, liquidity is poor.

Early withdrawers get their funds, prompting latecomers to worry they will miss out—fueling a self-reinforcing cycle. To counteract this dynamic, central banks act as “lenders of last resort,” providing emergency liquidity to help banks manage concentrated withdrawal pressure.

What Are the Impacts of a Bank Run?

Bank runs force institutions to “fire-sale” assets, incurring losses and transmitting stress to other entities and industries—ultimately shrinking credit across the economy. This may affect lending, corporate financing, employment, and extend into broader economic activity.

Regulators mitigate these shocks using two primary tools: deposit insurance, which guarantees deposits up to a certain limit (for example, in China the maximum insured amount is RMB 500,000 as of 2025 according to official policy); and central bank liquidity support through refinancing or emergency lending to ease short-term cash strain.

How Are Bank Runs Related to Crypto?

The connection lies in “redemption pressure.” Stablecoin redemptions resemble small-scale bank withdrawals—if collateral assets fluctuate or liquidations stall, run-like pressures can arise. Crypto exchanges may also experience mass withdrawals that test asset reserves and operational resilience.

In crypto contexts, users should assess whether platforms provide “proof of reserves,” which shows the match between held assets and liabilities. For example, on Gate you can review reserve disclosures and risk warnings to evaluate a platform’s payout capability and transparency during stressful periods.

How Can Bank Runs Be Prevented?

Preventing bank runs requires coordinated action from banks, regulators, and users. Banks should increase holdings of high-quality liquid assets and manage interest rate and maturity risks to reduce forced asset sales. Regulators must enhance information transparency and swiftly address market concerns to limit rumor-driven panic.

For individuals, diversifying funds across banks, understanding deposit insurance coverage, and evaluating institutional risk management are prudent strategies. Crypto investors should monitor custody practices, proof of reserves, on-chain transparency, and risk control processes to minimize counterparty risks during mass withdrawals.

What Should You Do During a Bank Run?

Step 1: Verify your information sources. Prioritize official statements from regulators and banks over unverified rumors.

Step 2: Check your coverage. Ensure your deposits fall within the deposit insurance limit, and understand your account type and terms.

Step 3: Assess liquidity needs. Make withdrawal decisions based on household or business cash flow requirements—consider partial withdrawals or keeping some funds on deposit.

Step 4: Diversify and seek alternatives. Where permitted by law, spread funds across different banks and accounts to avoid single-point risks; in crypto settings, evaluate platforms’ proof of reserves and withdrawal capacity under stress.

Step 5: Monitor fees and timing. Large-scale withdrawals can incur transaction fees, settlement delays, or network congestion—plan carefully and keep records of your actions.

How Do Bank Runs Differ From Stablecoin Runs?

Both events involve concentrated redemption pressure, but the underlying mechanisms differ. Banks’ assets are primarily loans and bonds—slow to liquidate and sensitive to market prices; stablecoins’ collateral assets and redemption processes vary by protocol. Some stablecoins rely on on-chain liquidation, others depend on custodied assets held by banks.

Moreover, banks can receive emergency support from central banks acting as lenders of last resort; stablecoins generally lack such public bailout options and must rely on market-driven measures such as increased redemption fees or temporary withdrawal limits. This difference shapes each sector’s crisis management toolkit.

How Are Trends in Bank Runs Evolving?

With the rise of mobile banking and instant payments, bank runs now occur faster than ever as information spreads rapidly and risks concentrate more easily. Regulatory trends focus on greater transparency, robust stress testing, cross-institutional cooperation, and timely liquidity support during critical moments.

In crypto markets, proof of reserves, on-chain audits, and risk contingency planning are becoming foundational features for platforms. Looking ahead, both banking and crypto sectors will prioritize clarity of information, ample liquidity, and timely disclosures to reduce systemic risks from mass redemptions. Managing funds safely is essential for individuals and businesses—always carefully evaluate applicable protections and limitations.

FAQ

Are “bank run” and 银行挤兑 the same concept?

Yes—“bank run” is the English term for 银行挤兑; they refer to the same phenomenon. In crypto contexts, this term is also used to describe large-scale redemption events affecting stablecoins or crypto banks. Understanding this concept is key to grasping risk in both traditional finance and digital asset ecosystems.

Why can a bank go bankrupt during a run even if it seems well-funded?

Because banks use fractional reserve banking—they only keep part of customers’ deposits as cash while lending out the rest for profit. When many customers demand withdrawals at once, banks cannot instantly meet all requests. Even if total assets are sufficient, lack of liquidity can cause collapse—just like owning property does not guarantee immediate access to cash.

How can ordinary depositors judge if their bank is at risk?

Watch for warning signs: increasing negative news coverage about the bank; sudden spikes in deposit rates (a sign the bank is seeking funds); difficulties withdrawing cash at ATMs; high staff turnover. The most reliable protection is deposit insurance (e.g., up to RMB 500,000 in China)—only amounts above this are at risk. Stay vigilant but avoid excessive worry.

Which is more likely: a run on stablecoins or banks?

Stablecoin runs are generally more likely because users can withdraw seamlessly 24/7 while banks have business hour limits; stablecoin issuers also lack central bank liquidity backstops available to traditional banks. If trust falters, stablecoin runs unfold faster and affect more users—as seen in 2023 with USDC and USDT facing similar pressures.

If my bank faces a run, should I rush to withdraw my funds?

It’s not advisable to join a panic unthinkingly. First check if your account is covered by deposit insurance—most insured depositors have little reason for concern. Next consult local financial regulators about risk status. Withdraw only if truly necessary; avoid letting fear dictate your actions since mass panic can actually accelerate systemic risks.