What is a bank run?

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A bank run is when depositors at a bank all ask to withdraw their money at the same time. Bank runs are brought on by panic or uncertainty about a bank going bust.

In the current banking system banks are only ever able to repay a fraction of their account holders at the same time, so it is impossible to give all the depositors back their money at the same time.

In a ‘sovereign money system’ a bank run would not be possible because banks are required to keep the full amount of their customer’s funds unless they have explicit permission to invest those funds. (Customers who had agreed to have their funds invested, by putting them into an ‘Investment Account’, would not be able to withdraw the money until the date they agreed when they opened the account, and so can’t ‘run’ on the bank.)

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Posted in: 2. The Current Monetary System

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