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Bank run
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{{short description|Mass withdrawal of money from banks}} {{Redirect|Bank panic|the video game|Bank Panic{{!}}''Bank Panic''}} [[File:Bank Run on American Union Bank.jpeg|thumb|upright=1.5|American Union Bank, New York City, April 26, 1932]] A '''bank run''' or '''run on the bank''' occurs when many [[Client (business)|clients]] withdraw their money from a [[bank]], because they believe [[Bank failure|the bank may fail in the near future]]. In other words, it is when, in a [[fractional-reserve banking]] system (where banks normally only keep a small proportion of their assets as cash), numerous customers withdraw cash from [[deposit account]]s with a financial institution at the same time because they believe that the financial institution is, or might become, [[insolvency|insolvent]]. When they transfer funds to another institution, it may be characterized as a [[capital flight]]. As a bank run progresses, it may become a [[self-fulfilling prophecy]]: as more people withdraw cash, the likelihood of default increases, triggering further withdrawals. This can destabilize the bank to the point where it runs out of cash and thus faces sudden [[bankruptcy]].<ref name=Diamond2007/> To combat a bank run, a bank may acquire more cash from other banks or from the [[central bank]], or limit the amount of cash customers may withdraw, either by imposing a hard limit or by scheduling quick deliveries of cash, encouraging high-return [[term deposits]] to reduce on-demand withdrawals or suspending withdrawals altogether. A '''banking panic''' or '''bank panic''' is a [[financial crisis]] that occurs when many banks suffer runs at the same time, as people suddenly try to convert their threatened deposits into cash or try to get out of their domestic banking system altogether. A '''systemic banking crisis''' is one where all or almost all of the banking capital in a country is wiped out.<ref name=imf2008/> The resulting chain of bankruptcies can cause a long [[economic recession]] as domestic businesses and consumers are starved of capital as the domestic banking system shuts down.<ref name=Wicker/> According to former U.S. Federal Reserve chairman [[Ben Bernanke]], the [[Great Depression]] was caused by the failure of the [[Federal Reserve System]] to prevent deflation,<ref>{{cite web|title=Remarks by Governor Ben S. Bernanke At the Conference to Honor Milton Friedman, University of Chicago, Chicago, Illinois|date=November 8, 2002|website=Federalreserve.gov|url=http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021108/}}</ref> and much of the economic damage was caused directly by bank runs.<ref name=Bernanke/> The cost of cleaning up a systemic banking crisis can be huge, with fiscal costs averaging 13% of [[GDP]] and economic output losses averaging 20% of GDP for important crises from 1970 to 2007.<ref name=imf2008/> Several techniques have been used to try to prevent bank runs or mitigate their effects. They have included a higher [[reserve requirement]] (requiring banks to keep more of their reserves as cash), government [[bailout]]s of banks, [[bank regulation|supervision and regulation]] of commercial banks, the organization of [[central bank]]s that act as a [[lender of last resort]], the protection of [[deposit insurance]] systems such as the U.S. [[Federal Deposit Insurance Corporation]],<ref name=Diamond2007/> and after a run has started, a temporary suspension of withdrawals.<ref name=Heffernan/> These techniques do not always work: for example, even with deposit insurance, depositors may still be motivated by beliefs they may lack immediate access to deposits during a bank reorganization.<ref name="WaMu-LAT"/>
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