What is the bank?

Bank run is a situation where deposits panic and download their deposits at the same time from a banking institution. The result of a massive outflow on the sources of the bank is often insolvency for the bank, ironically to create a situation where panic about insolvency creates insolvency. When multiple banks appear at a time, the extended financial crisis known as bank panic may be the result. Bank panic played an important role in many financial crises, such as major depression in the United States.

The process that leads to a banking run is usually gradual. First, the economy will begin to reduce a decline, causing consumers to become restless. Then consumers are beginning to worry that their deposit resources are not safe, considering these resources and putting them in another institution or completely withdraw from the circulation. As panic builds and consumers are growing more and more stressing, they descend to a bank in a massive group have demanded their funds for deposit. Most banks pIt uses a system known as fractional banking, in which the percentage of total deposits is maintained, while most of the funds for deposit are invested in different ways. This practice allows banks to earn money. When enough banking customers arrive to demand their funds, the bank can run out of money and become insolvency.

Since the bank is trying to meet consumers' requirements during bank run, it can call loans, securities and other investments, causing the ripple. As a result of banking traffic, debtors can become insolvent, as well as companies associated with bank investment. Once one bank fails as a result of a banking run, it can also stimulate additional panic and uncertainty, causing bank panic.

Many countries have introduced measures that are to alleviate the effects of banking runs. For example, in the United StatesThe federal company insurance (FDIC) is guaranteed by deposits of up to $ 100,000, which means that even if the bank becomes insolvency, banks' customers still get their money back. However, for customers with a surplus of $ 100,000, the bank run creates a risk of losing these additional means, which can destroy savings and pension accounts.

During financial panic, it is important for customers to maintain their heads. Anyone who has funds for a deposit in an institution that is financially fighting has certain rights as a consumer. These rights are usually listed in the brochures provided by the bank when someone opens an account, and customers can also contact agencies such as FDIC or equivalent for more information.