Run on the Banks
Definition
A run on the banks is a financial situation where a large number of customers withdraw their deposits from a bank simultaneously, due to fears that the institution might become insolvent.
Analogy
Imagine you're at a party and there's only one pizza left. Suddenly, everyone gets hungry at once and rushes to grab a slice. If everyone tries to get their piece at the same time, there won't be enough for everyone - this is similar to what happens during a run on the banks.
Related terms
Bank Failure: This occurs when a bank cannot meet its obligations to its depositors or other creditors because it has become insolvent or too illiquid to meet its liabilities.
Financial Panic: A sudden widespread fear about the stability of financial institutions leading to actions like runs on banks.
Federal Deposit Insurance Corporation (FDIC): An independent agency created by Congress in 1933 designed to maintain public confidence and encourage stability in the financial system through insuring deposits, examining and supervising financial institutions for safety and soundness and consumer protection.
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