Bank Run - Bank Panic

A series of unexpected cash withdrawals made when depositors withdraw cash en masse.

Since the amount of cash reserves that a bank keeps is only a small fraction of its deposits, simultaneous withdrawals within a short period of time can overwhelm available cash and force the bank to close or go out of business.

For example, in July 2008, Federal regulators were forced to close Pasadena, Calif.-based Indymac Bank when news of a letter that questioned the banks viability reached the public.  Within eleven business days,  $1.3 billion was withdrawn from accounts. The run caused a liquidity crisis that forced IndyMac to halt all new loan submissions.  They closed both retail and wholesale lending divisions and laid-off 3,800 employees.

In September 2008, a massive bank run the forced a shut down of Washington Mutual, (WaMu) withdrawn $16.7 billion in deposits. As of October 2008, WaMu was the biggest bank failure in U.S. financial history. Typically, banks are seized on Fridays to allow the FDIC the weekend to prepare the failed bank for takeover by another bank. But because of the size of  WaMu, regulators shut it down on a Thursday.