‭ ame: Võ Hồng Ánh‬

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‭Class: Anh 02 - CLCTC - K62‬

‭ ssay: What is a bank run? Analyze the causes and consequences of bank‬
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‭runs. Give an example.‬

‭ bank run is a situation in which a large number of depositors simultaneously‬

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‭withdraw their entire deposits from a bank or similar financial institution. This‬
‭scenario typically occurs when depositors lose confidence in the stability and solvency‬
‭of the bank, causing financial pressure and potentially leading to the collapse of the‬
‭banks under fractional-reserve banking.‬

‭ here are two main causes of bank runs. One reason is that depositors notice the signs‬
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‭of financial instability when news or indications suggest that a bank is facing financial‬
‭difficulties, such as heavy losses, risk management issues, or legal disputes.‬
‭Therefore, depositors may lose trust and start withdrawing their funds. Another reason‬
‭is rumours or misinformation. When rumours spread about the risk of a bank's‬
‭collapse or misinformation is disseminated. As a result, depositors may envision‬
‭scenarios of losing their money, leading them to participate in a bank run.‬

‭ hese above causes lead to some consequences that bank runs can be severe and‬
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‭widespread. When a bank run occurs, a bank is forced to close its doors until some‬
‭bank loans are repaid or until some lender of last resort provides it with the currency it‬
‭needs to satisfy depositors. Banks may struggle to meet the demand for withdrawals‬
‭and might not have enough cash on hand to fulfil short-term obligations. This erodes‬
‭depositors' trust and can potentially lead to the collapse of the bank. Moreover, the‬
‭contagion of financial instability in a specific bank can spill over to other banks and‬
‭cause a broader loss of confidence in the banking system. This can trigger economic‬
‭recession, and financial crises and complicate the control of the money supply.‬

‭ n example of a bank run is the Chinese Banking Crisis in 2013. When the Chinese‬
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‭government imposed deposit rate limits and there were signs of financial distress in‬
‭the banking system, strong runs occurred as thousands of people simultaneously‬
‭withdrew money from banks. This created financial turmoil, raised concerns about the‬
‭Chinese banking system, and had implications for the global economy. Therefore,‬
‭bank runs can have significant negative consequences for both the bank and the‬
‭financial system.‬
I‭ n conclusion, to prevent bank runs, authorities need to build confidence and stability‬
‭in the banking sector through effective regulation, oversight, and communication with‬
‭depositors.‬