Bank runs and panics

Keeping your money in a bank seems like a good idea. However, from time to time, depositors lose confidence in banks. In chapter 14 we learned that when many people lose confidence in a bank at the same time it is called a bank run , and when this happens to many banks at the same time it is called a bank panic. Runs and panics typically occur following the realization that banks may have made bad loans, and may be unable to provide depositors with access to their funds. So it’s clear that there is some risk in keeping your money at a bank.

If your bank was experiencing a run, would you join in, or would you be confident that the FDIC would be there to insure your account?
Since the European Union does not have a unified banking system (and possibly other reasons) there is no deposit insurance at most European banks. If you had a bank account in Europe, would you be more, less, or equally as likely to participate in a bank run?
If it was a panic instead of a run, would you feel safe? Why or why not?

Sample Solution

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