How bank runs happen — from Northern Rock to SVB

A bank run is what happens when depositors stop believing they will get their money back — and all try to get it at once. Because banks lend out most of what they take in, no bank holds enough cash to repay everyone on the same day. A run can therefore kill even a solvent bank. The fear becomes self-fulfilling.

Why banks are vulnerable

Banks perform maturity transformation: they fund long-term loans with deposits that can leave at any moment. That is useful — it is how savings become mortgages and business investment — but it creates a coordination problem. The economists Douglas Diamond and Philip Dybvig formalised this in 1983: if enough depositors expect others to run, running becomes the rational thing to do. (They shared the 2022 Nobel prize in economics with Ben Bernanke for work on banks and financial crises.)

Northern Rock, 2007: the queues

Northern Rock, a British mortgage lender, funded much of its lending in wholesale markets rather than with deposits. When those markets froze in 2007, it asked the Bank of England for emergency support. When that news broke in September 2007, customers queued outside branches to withdraw their savings — the first run on a British bank in well over a century. The bank was nationalised in 2008.

Silicon Valley Bank, 2023: the app-speed run

SVB had grown rapidly on deposits from technology companies — most far above the insured limit — and invested much of them in long-term bonds. When interest rates rose, those bonds lost value. After SVB announced a loss-making sale of securities and a plan to raise capital, worried founders and investors moved money out through their banking apps. Customers tried to withdraw around $42 billion in a single day; regulators closed the bank the next morning, 10 March 2023. A run that once took weeks took hours.

What makes a run more likely

• Uninsured deposits. Deposit insurance (up to €100.000 in the EU, $250.000 in the US) removes most retail depositors' reason to run. Large corporate balances are not covered and move first.
• Concentrated, connected depositors who talk to each other — and to social media.
• Thin liquidity: too little cash and easily sold bonds relative to deposits.
• A visible loss or scandal that makes people doubt solvency.
• Hidden losses, such as bonds marked down by rising rates (see duration risk).

What actually stops a run

1. Liquidity bought before the rumour — a large buffer of cash and high-quality liquid assets (the LCR rule requires enough to survive 30 days of stress).
2. Sticky, insured, primary customers — people whose salary lands in the account don't move it on a rumour.
3. The central bank as lender of last resort, lending against good collateral — though using it can itself spook markets.
4. Credible communication — but only if the numbers back it up. Reassurance without cash makes things worse.
5. A state guarantee, the last resort, at a high political and financial price.

Frequently asked questions

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