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What's a Bank Run?

The bank run is essentially the phenomenon during which the depositors of a bank "make a run" in order to withdraw their funds in physical form (in cash) from the bank.

During a bank run, those who hold bank accounts take the bank offices and/or ATMs by assault in order to withdraw their funds in cash.

It's extremely risky, because banks almost never have the required amount of paper money. Because in modern capitalism the vast majority of money is in digital form. Bank accounts, credit cards and debit cards are a digital form of money - you might say, "not real money".

During bank runs, the cashiers and ATMs usually cannot "feed" the solicitors with enough money.

Obviously - those who withdraw their money first will be able to save their holdings. Eventually, money will run out and the vast majority of account holders will remain without any money at all!

In the past, banks went bankrupt due to bank runs!

Basically, it's a pyramidal scheme. The banks have far less physical money than they recognize having. This is due to the fractional reserve banking system.

Bank runs occur frequently during crisis times. Bank runs during the current economic crisis have occurred first in Greece, then in Cyprus.

You can protect against a bank run by investing in precious metals and holding them at a safe location.

You can lose your money in case of a bank run, but your personally-held precious metals are tangible and have intrinsic value. Owning precious metals like silver or gold is recommended during times of crisis (like now, for instance). While others could lose their lifetime savings, you could preserve them!

Bank run in Berlin

Bank run in Berlin at the beginning of World War II

Photo credits: The Library of Congress / Foter

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