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"A bank run is a self-fulfilling prophecy. As the probability of bank failure increases, more depositors seek to withdraw their money and fewer lenders are willing to loan short term funds to the bank."
Keith Yost, MIT

Latest News:

September 25 2008: Washington Mutual closed by federal regulators amid bank run by depositors who withdraw over 16 Billion in assets in just 10 days.

History of Bank Runs in the US

Panic of 1907- In October 1906, Otto Heinze attempted to take control of United Copper with the assistance of a number of large New York banks. His buyout failed, and banks involved in the scheme experienced a run on thier funds, leading to the collapse of the Knickerbocker Trust Company, New York's 3rd larget institution.

This caused a widespread fear first across the New York banking system, and later into the national deposits. Without a central banking authority, the crisis had to be contained by J.P. Morgan, who created a consortium of banks which created liquidity for the market.

Some of the greatest tragedies of the panic (1929) were the losses sustained by high corporation officials who were carrying large blocks of their own stocks on borrowed money. In many instances the accumulations of a lifetime were wiped out.
- Phil Carret

 

1929 - Stocks had been on the decline for quite some time, but had recovered slightly in the middle of the year. Consumers had cut their spending by 10% and stopped adding additional debt. Auto sales nearly halted and wages began to suffer. Several small rural banks become the victims of heavy withdrawls, resulting in their closure. the Federal Reserve did not act to prevent these collapses.

As times became togher, wages declined and unemplopyment increased, banks which heavily financed the debt of the American public became unstable as defaults soared. Larger banks stopped lending to smaller banks, causing even more defaults and closures.

Runs on all banks occured multiple times until the entire banking system failed, resulting in the Federal Reserve calling for a 10 day bank holiday. By this time over 700 banks failed and Americans had lost over 130 billion dollars which was never recovered, causing a Great Depression.