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Imagine waking up to news that your bank is closed for the week, your daily cash withdrawals are limited to less than $70, and your savings might be converted to a new currency before you have a chance to access your account again.
During the depression, banks collapsed because of widespread panic and fear. Remember the scene in “It’s a Wonderful Life” where everyone wanted to take their money out of the bank? That’s exactly what’s happening in Greece right now, as citizens face new restrictions designed to prevent a nationwide bank run. Greek account holders, worried their Euro-denominated savings would be endangered by an exit from the eurozone, flocked to ATMs, which were quickly emptied out.
Bank runs can be contagious, quickly spreading from truly broke banks to banks that are perfectly solvent. During panics like the Wall Street crash of 1929, healthy and shaky institutions alike were besieged by account holders demanding their money back.
But like George Bailey told everyone in the movie, the money you put in a bank isn’t sitting around in a vault somewhere. It was loaned out to someone else so they could build a house or fund a business venture.
The most recent bank ‘run’ here was during the 2008 financial crisis. People were concerned about the solvency of some banks and withdrew their money, which only made things worse for the banks.
So, what causes a ‘run’ on a bank, and could it happen in the United States once again? Click the link below for more information.
Source: Smart banking: What is a ‘run’ on the bank? – Yahoo Finance
