How Does a Bank Run Happen?
Each person in the line acts sensibly, yet together they sink the bank.
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1.What is a bank run?
Each person in the line acts sensibly, yet together they sink the bank.
2.What is liquidity?
Banks lend out most deposits and keep only a fraction as cash (St. Louis Fed).
3.In the made-up bank with 1,000 deposits and 100 cash, what happens if 10 percent is withdrawn?
10 percent of 1,000 is 100, exactly the cash on hand (worked example).
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Sources (5)
- Federal Reserve Bank of St. Louis, FRED Blog, How much cash do banks keep in the vault? (12/2018)
- Bank of England, Annual Report 2008
- Bank of England / HM Treasury / FSA, Liquidity Support Facility for Northern Rock plc (14.9.2007)
- Federal Deposit Insurance Corporation, Understanding Deposit Insurance
- Eigene Berechnung (Python/
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Education only. Not financial advice.