No Need to Run

Written by Joshua Ravichandran

I’m a runner. In fact- I just ran my first half marathon last week. But let me tell you, there’s one place I’ll never run to. That’s my bank- and that’s thanks to some really smart policy. 

This paper hopes to answer three big questions. First, what exactly is a bank run? Second, why- for the most part- have bank runs become a thing for the history books? And finally, what went wrong with Silicon Valley Bank? 

Simply put, a bank run is when lots of depositors- those who have their money in the bank- all rush to withdraw their money at once. Unfortunately for depositors and their banks, this is bad news. 

Whenever you put your savings in the bank, it doesn’t keep all of it in its vault. Instead, they’ll lend some of it to customers as loans, and that’s also why you’ll get to earn interest on your savings. 

Of course, the bank doesn’t lend out all the money you give it. They still keep some in their vaults- known as reserves- in case you decide to withdraw your savings. If things are running smoothly, this is no big deal. Banks expect that some folks will withdraw their savings, so they keep enough money to handle it. 

When a bank run happens, things don’t act as expected. Instead of a few people asking to withdraw their money, everyone tries to withdraw their money at once. And because the bank doesn’t have all of it in their vaults- remember, the bank already gave out some of it as a loan, they aren’t able to handle it. This is what triggers a bank run. 

Once news that a bank run might happen hits, the countdown clock starts to get your money out of the bank. Get there first and the bank will still have enough in its vault for you to withdraw your savings, but if you get there too late there won’t be enough money left. 

With no money in the fault and nothing to give out, anyone who didn’t get their money out in time is left with nothing and the bank ends up failing.  

 Bank runs are also  contagious. Once a bank run happens to one bank, folks will be more worried about what will happen to their bank. That fear  fuels people to withdraw their savings, causing even more bank runs. 

During the 1920s and the early 1930s, thousands of banks failed which caused depositors to lose more than 1.3 billion in savings That’s a huge deal, So if bank runs are contagious, why have they- for the most part- stopped? 

That’s thanks to the FDIC. The FDIC stands for the Federal Deposit Insurance Corporation, and it is an independent agency created in 1933 by Congress whose goal is to maintain stability and public confidence in the nation’s financial system. They’ve done a pretty great job at it too-  not even one depositor has lost a penny of insured funds as a result of a bank run.

The FDIC guarantees that even if the bank runs out of money, you’ll still be able to get your funds back. They do this by covering up to $250,000 per depositor, and you don’t have to purchase deposit insurance to get it. 

What this means is that even if you think other folks are going to withdraw their cash, it doesn’t matter if the bank has enough money in the vault because either way you’ll have your funds covered. WIthout the fear of losing your money, there’s no need to run to a bank. And when everyone else realizes this too, no else needs to run to the bank either, so things continue to operate smoothly. 

So what’s different about Silicon Valley Bank (SVB)? On March 10, 2023, Silicon Valley Bank experienced a bank run causing the second-largest bank failure in U.S. history. Unlike most banks, depositors at Silicon Valley Bank tended to be start-up companies who had much more than just the $250,000 covered by the FDIC. Because not all of their funds were insured, as soon as the news broke out that Silicon Valley Bank was in trouble everyone tried to withdraw their money at once. 

In the digital age, bank runs can happen much more quickly than before. The FDIC estimates that customers withdraw over $40 billion in the matter of just a few hours from Silicon Valley Bank. 

Since bank runs are motivated by fear and mass panic, social media has made it so if enough people believe it will happen it might actually come true. 

There’s been discussion about raising the level of insurance the FDIC provides on deposited funds. If this is the case, then even banks like SVB collapsing would have no effect on depositors.  However this needs to be done with caution. If banks know that they’ll be covered if anything goes wrong, this could lead to much riskier investments. There’s actually a term for this in economics, and it’s called a moral hazard. That’s when you might make riskier decisions because you have some insurance to protect you from your consequences.

Regardless of what happened to SVB, your bank isn’t likely to fail anytime soon. The FDIC has changed the way we think about deposits, and we’re able to sleep soundly at night thanks to their smart policy. 


Sweet, Ken. “Bank run underway? Silicon Valley Bank says not to worry.” AP News, 6 October 2021,

“FDIC: 1930s.” Federal Deposit Insurance Corporation, 2021,

Korn, Jennifer. “Viral bank run: A scary possibility in the age of social media.” CNN, 14 March 2023,, Max. “Silicon Valley Bank warns of ‘digital bank run’ as accelerated collapse possible.” ABC News, 15 October 2021,