Bank Panic

See Bank run.

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Bank Panic

A series of sudden withdrawals from one or more banks on a large scale. Bank panic occurs when customers believe that the bank in which they have funds is about to fail and they will soon lose their money. However, as more customers withdraw their money, the likelihood of bank failure increases until it actually happens. Bank panic can thus become a self-fulfilling prophesy based, ultimately, in a crisis of consumer confidence in the bank. Large bank panics can reduce the amount of liquidity in the market, making it more difficult to receive a loan or other financial services. Bank panics were relatively common in the United States in the 19th and early 20th centuries, and are thought to have worsened some of the effects of the Great Depression. The Federal Deposit Insurance Corporation was created to insure bank deposits to reduce the incentive for bank panics. They are also known as bank runs or runs on a bank.