FRM Financial Risk Manager Practice Test

A bank run is a situation when a large number of customers withdraw their deposits because they believe the bank might be or is insolvent

Key Takeaway: A bank run is an initial phase for bankruptcy if it is not prevented. As more people withdraw their deposits, the likelihood of default increases and this encourages further withdrawals. This can destabilize the bank to the point where it faces bankruptcy. If many banks suffer runs at the same time, it leads to the financial crisis of bank panic.