Bank Run, Coming Soon to a Neighborhood Near You

From Wikipedia, the free encyclopedia

(also known as a run on the bank) is a type of financial crisis. It is a panic which occurs when a large number of customers of a bank withdraw their deposits because they fear it is, or might become, insolvent. This action can destabilize the bank to the point where it becomes insolvent. Banks retain only a fraction of their deposits as cash (see fractional-reserve banking): the remainder is invested in securities and loans. No bank has enough reserves on hand to cope with more than the fraction of deposits being taken out at once. As a result, the bank faces bankruptcy, and will 'call in' the loans it has offered. This can cause the bank's debtors to face bankruptcy themselves, if the loan is invested in a plant or other items that cannot easily be sold.

A banking panic or bank panic occurs if many banks suffer runs at the same time. The resulting chain of bankruptcies can cause a long economic recession.^[1]

As a bank run progresses, it generates its own momentum, in a kind of self-fulfilling prophecy. As more people withdraw their deposits, the likelihood of default increases, so other individuals have more incentive to withdraw their own deposits. A bank run is a kind of positive feedback loop which has much in common with the reflexive processes described by George Soros, amongst others. Another example of a reflexive process is economic bubble.

HOUSING FEAR TIPS

• If you have more than 100k in any bank take any amount over 100k out immediately and place it in another bank.

• JUST BECAUSE YOUR MONEY IS IN "CASH" DOES NOT MEAN IT IS SAFE. I RECENTLY TOOK MONEY OUT OF A MONEY MARKET ACCOUNT BECAUSE I LEARNED IT WAS NOT FDIC INSURED. USE DUE DILIGENCE TO MAKE SURE THE BANK, FUND, MONEY MARKET, ETC YOUR CASH IS IN IS INSURED.

• IF YOU HAVE OVER 250K IN ANY 1 RETIREMENT ACCOUNT. ROLL SOME OF IT INTO ANOTHER ACCOUNT.

Now grab some popcorn and enjoy the start of the second Great Depression.