Bank Runs

Digital banking and rapid communication can accelerate deposit runs, although technology is an accelerant rather than the underlying cause of weak risk management or balance-sheet vulnerabilities.

Silicon Valley Bank lost more than $40 billion in deposits on March 9, 2023, and expected more than $100 billion of additional outflows the following day before it was closed.

Federal deposit insurance reduces incentives for insured retail depositors to run because insured deposits are protected subject to coverage rules.

Bank runs can become self-reinforcing because withdrawals by some depositors increase liquidity pressure and can cause other depositors to withdraw as well.