What a bank run is — when everyone wants their money at once
A bank doesn't keep all its clients' money in the vault. Usually that's fine. But when everyone comes to withdraw on the same day, even a healthy bank can collapse.
The secret of banks: when you deposit money, the bank doesn't let it sit. It lends it onward to others and keeps only a fraction on hand. That's how it earns money and pays interest. Usually it works perfectly — not all clients want their money on the same day.
When fear becomes contagious
But if a rumor spreads that a bank is in danger, everyone rushes to pull their money at once — a bank run. The bank can't pay everyone simultaneously, because the money is lent out. And so even unfounded fear can topple a bank. It has happened countless times in history.
How the system defends itself today
That's why deposit guarantees exist (in the EU, up to €100,000 per client per bank) and central banks that can quickly lend money to a bank under pressure. In Kosron Bank you can grasp the whole mechanism — deposits, loans, reserve — by seeing how the money connects.
