Bridger PenningtonFund Launch & Investment Expert

What’s a “Run On The Banks”?!

31 Mar 2023 · 1 min

Watch on YouTube

1:22

In this 2023 YouTube monologue, the speaker explains the concept of a bank run within the framework of fractional‑reserve banking, noting that banks are only required to hold about 10 % of deposits in cash. He recounts the 1907 banking panic, where J.P. Morgan rescued numerous insolvent banks by providing cash, cementing his legend on Wall Street. The narrative then jumps to 2023, describing how the Federal Reserve has similarly intervened to protect depositors of struggling regional banks, effectively centralising the banking system. The speaker concludes by expressing doubt that the crisis is over and invites viewers to comment on whether more banks might fail.

Chapters

If you have a bank account, you need to know what a run on the bank means and how it's affecting us in 2023. Now, because of fractional reserve banking, banks are only required to keep 1/10 of all your deposits on hand. Meaning if you put $1 million into a bank account, they only need to keep $100,000 on hand to give you as deposit. Now, this has worked great for years under fractional reserve banking until a lot of depositors come and request their funds out of a bank, which is called a run on the bank. So actually back in 1907, there was the banking crisis where hundreds of banks were going insolvent because depositors would all hear that a bank was going under. They'd all rush to the bank to pull their money out and that bank wouldn't have enough funds to give back to their customers. Now, in one of the most famous stories of finance history, a bunch of banks were going to go insolvent and JP Morgan himself called up all of these banks and said, you guys will have money tomorrow. I will lend you money to make sure that you can fulfill these withdrawals from your bank. So JP Morgan sent carts full of cash to all these banks. He saved the whole banking industry essentially, and that's how JP Morgan became the legend on Wall Street. Now fast forward to 2023, the Fed has essentially stepped in and said the same thing. They've come in and saved the depositors of all these regional banks that are falling apart, and in some cases taken over these banks, which has centralized our banking system. Now I don't believe we're out of the weeds yet in this banking crisis. Comment down below if other banks are going to crash and what your thoughts are.