USA HISTORY

Detailed explanation-1: -A bank run occurs when a large number of customers of a bank or other financial institution withdraw their deposits simultaneously over concerns of the bank’s solvency. As more people withdraw their funds, the probability of default increases, prompting more people to withdraw their deposits.

Detailed explanation-2: -A bank run occurs when many customers withdraw all their money simultaneously from their deposit accounts with a banking institution for fear that the institution is, or might become, insolvent.

Detailed explanation-3: -To prevent a bank run, the central bank guarantees that it will make short-term loans to banks, to ensure that, if they remain economically viable, they will always have enough liquidity to honor their deposits.

Detailed explanation-4: -Bank Runs Can Lead to Bank Failures Bank runs are based on worries about bank insolvency that are ultimately rooted in the fear of losing money. Customers think (often rightly) that if a bank goes belly up, they’ll lose all of their money in the bank.

Detailed explanation-5: -Washington Mutual and Wachovia are two famous examples of bank runs at this time. Washington Mutual was the largest bank failure in U.S. history. The trouble began when it was revealed that the bank had been lent large sums of money by Freddie Mac and Fannie Mae.