What is a bank run?


Answer: A bank run is a sudden and drastic event that occurs when all the depositors in a bank rush to withdraw their deposits at the same time or within a very short timeframe. As more depositors withdraw their money, the rest of the depositor's fears of a bank's insolvency increase, therefore driving more depositors to withdraw their money. The only thing that can stop a bank run is everyone stopping from withdrawing their money, however this is a good example of game theory since the benefits of stopping individual's withdrawals benefits the whole system but is against the individual's benefit while withdrawing the individual's money benefits the individual but affects the whole system. Banks typically don't have the entirety of their depositors' money available for withdrawal. During a bank run they have to increase their cash positions, sometimes selling assets at a loss, increasing the likelihood of the bank's collapse.