Bank runs happen when a big number of individual account holders remove a lot of money all at once out of concern that the bank might collapse.
When consumers desire to withdraw significant sums of money quickly, a bank run may happen. In a fractional banking system, where banks only maintain a portion of deposits on hand as cash, this scenario is possible. They invest the remaining funds in interest-bearing assets or employ loans to create revenue. However, because banks typically only hold a portion of deposits in cash, they may encounter issues if clients request too many withdrawals too soon.Here are some precautions that banks may take:
1. Slow the Pace
2. Borrow Money
3. Use Term Deposits
4. Bottom Line