Bank Runs: A Review of Literature

Banks are important economic growth agents globally because of their roles in the intermediation of funds for investment and entrepreneurial activities. There is a relationship that develops between parties in the process of intermediation; the Banker-Customer relationship. The contract in the banker-customer relationship requires the bank to pay the customers whenever withdrawal requests are made, failure in this regard can lead to panic and a bank run. Bank runs occur when a large number of customers request to withdraw their deposits simultaneously. Bank runs can occur out of rumor or genuine reason of illiquidity in specific financial institutions. This study is motivated to contribute to the discussions on the multi-dimensional causes of Bank Runs and the impact of this occurrence on the banking industry and the economy. This descriptive study looks into the extent to which bank runs are driven by genuine concerns about bank liquidity and stability rather than rumor or panic about the failure of another bank within the financial system. It was discovered that households 'Propensity to Run' increased when they received negative news about the illiquidity or collapse of a banking institution. The study recommends strengthening the supervision roles of Regulatory Authorities.