What is a bank run? Definition, from the 1930s to Northern Rock and SVB

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A bank run happens when many depositors try to withdraw their money at the same time because they fear the bank will fail. Since a bank keeps only a small part of its deposits as cash, a large enough run can force it to sell assets at a loss or close, so the fear can make itself come true.

Runs are as old as banking. Three episodes show how they work and how the rules changed after each one: the US panics of the early 1930s, the run on Northern Rock in the UK in 2007, and the collapse of Silicon Valley Bank in March 2023.

Why do bank runs happen?

A bank takes deposits that customers can withdraw on demand and uses most of that money to make loans or buy securities that pay back over years. In normal times only a few customers withdraw on any given day, and new deposits cover them. The arrangement depends on trust.

If depositors start to believe the bank might fail, each one has a reason to get out first, because those at the back of the line may lose money. The bank then has to raise cash quickly. Selling long-term loans or bonds in a hurry often means selling below their value, which creates real losses even if the bank was sound before. That is why a rumor, a bad announcement or a run at another bank can be enough to start one.

What happened in the 1930s bank runs?

The early 1930s brought waves of banking panics in the United States. According to the FDIC's history of deposit insurance, more than 9,000 banks failed in the four years before federal deposit insurance began. Each failure wiped out savings and the loans that bank had made, and fear spread to healthy banks. Our page on the Great Depression explains how the bank failures fed the wider collapse.

Congress responded with the Banking Act of 1933, which created the Federal Deposit Insurance Corporation. Insurance took effect on January 1, 1934, covering $2,500 per depositor. The FDIC's history calls it an immediate success in restoring public confidence: only nine insured banks failed in 1934.

How does deposit insurance stop runs?

If depositors know they will be repaid even if the bank fails, they have no reason to rush. Today the FDIC insures deposits "to at least $250,000 per depositor, per ownership category at each FDIC-insured bank," and it states that "no depositor has lost a penny of FDIC-insured funds" since it was founded in 1933.

In the UK, the Financial Services Compensation Scheme (FSCS) protects eligible deposits up to £120,000 per person, per bank, building society or credit union. The limit rose to £120,000 on December 1, 2025. It can also protect temporary high balances up to £1.4 million for six months.

The weak point is money above the limits. Large uninsured balances are the deposits most likely to run, and that is what happened in 2023.

What was the run on Northern Rock?

Northern Rock was a UK mortgage lender that funded much of its rapid growth by selling mortgage-backed securities and borrowing in wholesale markets rather than from retail savers. When those markets seized up in the summer of 2007, it could no longer raise long-term funding.

On September 14, 2007, the Bank of England announced that the Chancellor had authorised it to provide "a liquidity support facility to Northern Rock against appropriate collateral and at an interest rate premium." The Bank's Financial Stability Report of October 2007 explains what followed: the announcement brought good news about funding, but it also confirmed how deep the bank's difficulties were, and that led to a retail deposit run. On the evening of September 17, the Chancellor announced that the government would guarantee all of Northern Rock's existing deposits.

The UK deposit protection limit at the time was £35,000, against $100,000 in the US, according to the same report, which concluded that the reaction of Northern Rock's depositors exposed the limitations of the UK deposit insurance regime. The episode is part of the story of the 2008 financial crisis.

What happened in the SVB bank run?

Silicon Valley Bank was a California bank that served technology companies and venture capital firms. According to the Federal Reserve's review of its failure, requested and overseen by Vice Chair for Supervision Michael S. Barr and published April 28, 2023, it grew from $71 billion to over $211 billion in assets between 2019 and 2021. At the end of 2022, about 94% of its deposits were uninsured. It had invested those deposits mainly in longer-term securities, and as interest rates rose in 2022 it faced deposit outflows and a rapid increase in unrealized losses on them.

The Fed review says the actual and expected outflows together represented roughly 85% of the bank's deposit base. For comparison, it cites estimates that Wachovia lost about $10 billion over 8 days in 2008 and Washington Mutual $19 billion over 16 days. Barr's cover letter points to a new factor: the combination of social media, a highly networked and concentrated depositor base, and technology "may have fundamentally changed the speed of bank runs."

The March 12 statement used a systemic risk exception to protect uninsured depositors as well, and said no losses from resolving SVB would be borne by taxpayers. The Fed also announced additional funding for eligible banks. The review's first conclusion was that SVB's board and management failed to manage their risks; it also found that Fed supervisors did not act with enough force.

What do bank runs have in common?

The three episodes share a pattern. A bank funded with money that could leave quickly held assets that could not be sold quickly at full value. Bad news then gave depositors a reason to leave together, and the run ended only when an outside guarantee made staying safe. Deposit insurance limits matter because they decide who has a reason to run. Our page on what a recession is covers how financial shocks can feed into the wider economy, and our list of stock market crashes shows how bank failures have lined up with market falls.

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