Bank Run Question


Terms in this set (...)

bank run
a phenomenon when many of a bank's depositors try to withdraw their funds at the same time due to fears of a bank failure
possible reason why bank runs begin
a rumor spreading that a bank is in financial trouble; even if the depositors of that bank aren't sure if the rumor is true or know other people are panicking and might "break the bank" (by getting all their funds out at the same time), he or she will play it safe and join the panic by withdrawing their own funds
why are they dangerous for whole economy not just one specific bank and those depositors
historically been proven as contagious; one fun causes lose in faith in other banks therefore more bank runs occur
example of U.S. bank run and how it started
IndyMac 2008 So. Cal.; mainly involved in mortgage banking and part of failure can be credited to a large number of questionable mortgage loans failing during the U.S. subprime mortgage crisis fro 2007-2009. The bank run of IndyMac was caused by a public release of a letter from the Senator to the FDIC and OTS, stating his concern with IndyMac and warning of possible collapse. This caused people to panic and start withdrawing their funds until the FDIC took over
example of international bank run and how it started
SwedBank of Latvia 2011; cause= twitter message saying that SwedBank shut down its ATMs, other branches being closed, and their chief executive was arrested. None were true but it caused a widespread panic and over 10,000 Latvians to try to withdraw their funds all around the same time