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Bank Run

A bank run takes place when a bank’s depositors try to withdraw all their money as they worry about the bank’s stability. This usually happens when depositors realize that their money is parked in a bank that is heavily exposed to bad debt, when credit rating agencies downgrade the bank’s standing, or when the bank is rumored to be close to bankruptcy.

As more people demand to withdraw their money, their fear becomes a self-fulfilling prophecy as banks reserves are usually not filled with enough cash to cover sudden and massive withdrawals. Eventually, this could push the bank closer to insolvency and increase the likelihood of default.

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