What are some causing factors behind a bank run.?

Question

I am writing a paper about bank runs and was needing some insight on the subject. Specifically, what are the causing factors behind bank runs? What are the short/long term effects of a bank run? Are there any warning signs or preventive measures that can be done to avoid a bank run? Any insight or any suggestions about where to look for these answers would be greatly appreciated.

Answer 1

First, I think it would be a good idea if you familiarized yoursefl the the origins of banks. When banks first started out, they were actually goldsmiths. They would store people's gold and give them a receipt. People started to trade this "receipt" as if it were gold. The goldsmiths, or bankers, got wind of this, and realized that they could "lend out" receipts even if there wasn't enough gold to cover all of the receipts that had in reserve.

This practice is known as "fractional reserve" banking, where there is more money lent out than is in reserve. If there is an economic issue, where more and more people start withdrawing from their account, the reserve can run out, shutting down the bank, and people lose their money.

Sometimes, if there is a rumor that a bank is about to become insolvent, people will start removing money from their account in order to get it out before it's too late.

Here is a link to a an article about the theory of bank runs.
http://www.mpls.frb.org/research/qr/qr2412.pdf

Here is the wikipedia page:
http://en.wikipedia.org/wiki/Bank_run

Answer 2

The primary cause is lack of trust.
If the bank customers don't trust the bank management, they will want their money NOW before everyone else gets to theirs first and leaves them with nothing.
The National Banking System system, and the FDIC insurance policies, guaranteeing your deposits made in member banks, have made bank runs useless.

Answer 3

panic