What happens in a bank run — and how businesses can protect their cash

The fastest bank run in U.S. history took less than 24 hours. In 2023, $42 billion fled Silicon Valley Bank as depositors moved faster than regulators could respond—a chilling reminder that even fundamentally sound institutions can unravel almost instantly.

Bank runs no longer begin with people standing in line outside a branch. They begin online, where fear spreads faster than any regulator or institution can respond. For CFOs and founders, the implication is clear: you need to understand how bank runs work—and how to safeguard your cash—long before trouble appears.

This guide explains how bank runs work, what causes them, what history teaches us, and the steps businesses can take to protect their cash and maintain operations.

What is a bank run?

A bank run occurs when large numbers of customers withdraw funds simultaneously because they fear a bank may fail. Although this dynamic is often associated with the Great Depression, modern bank runs happen faster and hit harder, especially for businesses with large, concentrated balances.

How a healthy bank operates

Banks operate on a fractional reserve system. Historically, many banks have kept less than 10% of deposits in liquid cash, investing the rest in loans or securities. The system functions because, in normal conditions, only a small percentage of customers withdraw funds at any given time.

This creates a structural vulnerability: if too many depositors demand cash at once, no bank—even a fundamentally strong one—can meet those withdrawals.

Regulators monitor bank stability using frameworks such as CAMELS (capital adequacy, asset quality, management, earnings, liquidity, and sensitivity to market risk). Banks with strong CAMELS scores can still fail when depositors panic.

How a bank run typically unfolds

1. A triggering event raises concerns: This could be a public disclosure of losses, a failed capital raise, regulatory scrutiny, or unexpected financial results.
2. Early withdrawals begin: Large depositors—typically those with uninsured balances—move first.
3. Information spreads quickly across media and networks: Group chats, social feeds, and investor networks accelerate coordination among customers.
4. Mass withdrawals exceed the bank's liquid reserves: Even healthy banks cannot withstand a sudden surge far beyond their available cash.
5. The bank attempts emergency measures: These often include borrowing from other institutions, selling securities at a loss, or attempting to raise capital.
6. Regulators intervene if the bank cannot meet obligations: This may involve placing the bank into receivership and arranging a sale to protect depositors.

Modern example: Silicon Valley Bank (2023)

In March 2023, SVB revealed it had sold $21 billion in securities at a $1.8 billion loss and needed to raise new capital. That disclosure triggered immediate concern among its highly networked depositor base.

Within hours:

• $42 billion in withdrawal requests were initiated in a single day
• This equated to nearly a quarter of all SVB deposits
• Liquidity was exhausted faster than the bank could raise new funding

The combination of duration risk, concentrated uninsured deposits, and rapid digital withdrawal channels led to the fastest bank run in U.S. history.

What causes a bank run?

Loss of confidence

News of losses, liquidity issues, regulatory scrutiny, or confusing communications can cause depositors to withdraw preemptively.

Asset–liability mismatches

Banks often hold long-term, fixed-rate assets funded by short-term deposits. When interest rates rise, those older assets lose value because the bank is locked into lower yields while new bonds pay more.

For example, a $100 bond paying 3% might trade for only $85 when market rates jump to 5%. To raise cash quickly, the bank would have to sell that bond at a loss. If withdrawals spike, those forced sales can turn a timing mismatch into a solvency problem.

Contagion

When one bank fails, depositors worry similar institutions may face the same issues. This causes sector-wide withdrawals.

Rumors and panic

In the digital era, panic spreads in group chats faster than regulators can issue a statement. During the SVB collapse, each founder who heard a warning immediately texted five more, and those five told five more. WhatsApp threads and Slack channels turned isolated concerns into a wave of coordinated withdrawals within hours.

Economic downturns

Recessions increase loan defaults, strain bank capital, and reduce liquidity.

Regulatory concerns

Public enforcement actions, penalties, or major supervisory actions can create fear even before solvency issues appear.

Historical bank runs — and what they teach us

The Great Depression (1929–1933)

Widespread panic caused more than 9,000 U.S. banks to fail between 1930 and 1933. The systemic collapse ultimately led to the creation of federal deposit insurance, which aimed to restore public confidence.

Northern Rock (2007)

When Northern Rock sought emergency support from the Bank of England, the news backfired. Within hours, televised images of customers lining up outside branches were broadcast globally. It was one of the last major bank runs ever caught on camera — and those images weaponized fear.

What began as concern about a single institution quickly morphed into panic about the stability of the entire U.K. banking system, accelerating withdrawals and ultimately forcing the government to nationalize the bank.

Washington Mutual (2008)

Heavy exposure to risky mortgage assets, deteriorating loan performance, and mounting investor skepticism triggered rapid deposit outflows. When regulators seized Washington Mutual, it held more than $307 billion in assets and $188 billion in deposits, making it the largest bank failure in U.S. history.

Silicon Valley Bank and peers (2023)

Unrealized bond losses, rapid interest-rate increases, concentrated uninsured deposits, and real-time communication channels created the conditions for extremely fast runs across several regional banks.

Across eras, the pattern stays the same: confidence breaks, liquidity evaporates, and asset-liability mismatches become fatal. The only real change is the speed at which runs unfold—and today, that speed is measured in hours instead of days.

How bank runs affect businesses and the economy

When a bank run hits, it doesn't show up in quarterly reports — it shows up in your payroll account on Friday morning. In 2023, the impact on businesses was immediate and highly visible.

1. Credit contraction: As regional banks came under pressure, many paused new lending, tightened covenants, or reviewed existing credit lines with little notice. Startups that relied on revolving credit or venture debt suddenly found those lifelines frozen, forcing emergency cash conservation and delayed hiring or vendor payments.
2. Operational disruption: SVB's failure left thousands of companies temporarily unable to access operating accounts. Some had payroll due within 48–72 hours. Public examples included:
   • Etsy sellers experiencing delayed payouts
   • Roku, with nearly $500M at SVB, activating contingency plans
   • Numerous startups warning employees of possible payroll delays
   • Access was eventually restored, but the scramble — opening new accounts, securing bridge funding, and communicating with employees — consumed critical time and attention.
3. Contagion across institutions: After SVB collapsed, depositors rapidly withdrew funds from banks with similar profiles, including Signature Bank and First Republic. This wasn't driven by fundamentals alone— it was fear. Outflows triggered liquidity stress, stock price collapses, emergency funding, and, in some cases, additional failures.
4. Economic slowdown and business uncertainty: The combination of frozen credit, operational risk, and contagion led many companies to:
   • Freeze hiring
   • Cut or delay spending
   • Reevaluate banking partners and treasury policies
5. Even companies with no direct exposure to SVB were forced into defensive mode, diverting attention from growth to risk management.

The takeaway: Bank runs don't just destabilize banks— they disrupt the businesses that depend on them. The 2023 crisis demonstrated how quickly payroll, payments, and credit can be jeopardized when confidence erodes.

Modern safeguards against bank runs

Modern banking has multiple safeguards designed to reduce the likelihood and severity of bank runs. These protections strengthen the system, but they do not eliminate risk for businesses, especially those with large, concentrated balances. For CFOs, the practical takeaway is clear: these safeguards help stabilize the system, but they don't guarantee uninterrupted access to your cash.

Here's what matters most:

Regulatory supervision

Regulators continuously evaluate banks’ risk profiles, governance, asset quality, and liquidity positions, and they can step in when they see problems.

In Silicon Valley Bank’s case, the Federal Reserve’s post-mortem later revealed that supervisors had flagged weaknesses in the bank’s interest-rate risk management and liquidity well before its failure — but the follow-up was too slow and not forceful enough to prevent a run once depositors panicked.

CFO takeaway: Supervision lowers the odds of a surprise failure, but it doesn’t remove the risk. Even when regulators have identified issues, a confidence shock can still trigger a run before corrective actions take full effect.

Deposit insurance

Deposit insurance programs protect deposits up to specified limits per depositor, per institution, per ownership category. This coverage significantly reduces panic-driven withdrawals for insured depositors.

CFO takeaway: Deposit insurance stabilizes retail behavior, but if your company holds balances above those limits, you're still exposed unless you diversify.

Central bank liquidity support

Central banks can provide emergency funding so banks can meet short-term withdrawal demands without selling assets at distressed prices.

CFO takeaway: Liquidity support can prevent isolated problems from becoming systemic, but it may not stop operational disruptions at the individual account level.

Capital and liquidity requirements

After the 2008 financial crisis, banks were required to hold more and higher-quality capital, maintain liquidity buffers, and undergo regular stress tests.

CFO takeaway: These rules make banks more resilient in downturns—but they don't prevent sudden deposit outflows or protect companies that rely on a single institution.

Orderly resolution mechanisms

If a bank does fail, regulators now operate with well-established playbooks to transfer deposits to another institution or wind down operations quickly, often over a weekend.

CFO takeaway: Resolution minimizes long-term damage, but it may not prevent short-term access issues—and even a brief delay in funds availability can disrupt payroll or vendor payments.

What businesses should do to protect their cash

Understand your account structures

Know where cash is held, how much is at each institution, and which accounts support essential operations.

Diversify banking relationships

Avoid single-bank dependence. As a baseline, maintain at least two banking providers so a problem at one doesn't freeze all of your cash or payments. Many larger companies go further and use three or more institutions, but two is the minimum that allows you to:

• Separate operating and reserve balances
• Run payroll and pay vendors from a backup bank if your primary provider is disrupted

The right number for your business depends on complexity and scale, but one bank is a single point of failure.

Maintain liquidity buffers

Maintain enough liquidity to cover 2–6 weeks of operating expenses in accounts you can access immediately. This gives you a buffer to run payroll and pay critical vendors even if one banking partner is disrupted.

Monitor your banking partners

Review credit ratings, regulatory filings, news coverage, and sector trends.

Create a contingency plan

Document how you would move funds quickly, who has authority to initiate transfers, which backup accounts you would use, and how you will communicate during a disruption.

Assign ownership: a senior finance leader should be responsible for maintaining the plan, updating it when roles change, and ensuring new team members have the right access and permissions. A plan without a clear owner quickly becomes outdated.

Test the plan annually

A plan that isn't tested is a plan that won't work. Simulated drills expose the weak points— missing user permissions, outdated contacts, conflicting instructions, and workflow gaps that only emerge under stress.

When speed matters most, a plan that sits in a drawer fails. A tested plan doesn't.

Banking risk exposure checklist

Use this checklist to assess your current risk exposure. Check any box that applies to your company:

☐ We rely on fewer than 3 financial institutions for deposits

☐ A single bank holds more than 40% of our cash

☐ Our balances exceed available FDIC coverage without protective structuring

☐ We do not monitor the financial health of our banking partners at least quarterly

☐ We hold less than 3–6 months of operating expenses in liquid reserves

☐ We rely on a single lender or lack backup credit facilities

☐ We do not have a documented contingency plan for bank failure

☐ Our treasury team cannot execute our contingency plan within 24 hours

☐ We lack real-time visibility into cash across accounts and institutions

☐ Our board does not review banking risk exposure at least annually

Two or more "yes" answers mean you're exposed. Three or more means you're gambling.

How Ramp helps businesses strengthen cash resilience

Most businesses keep too much cash in one place— effectively making them one bank failure away from a payroll crisis. Ramp helps you diversify your cash setup without adding operational complexity.

Ramp Treasury includes access to two complementary accounts, each designed for different cash needs:

Ramp Business Account

Designed for day-to-day operational cash management with modern visibility and controls.

Ramp Business Corporation is not a bank. Bank deposit services provided by First Internet Bank of Indiana, Member FDIC.

Ramp Investment Account

Provides access to a money market fund focused on short-term, high-quality securities for businesses looking to allocate excess cash based on their own liquidity preferences.

Securities products offered by Apex Clearing Corporation, member FINRA, SIPC. The Investment Account is not a deposit product, not insured by the FDIC, and may lose value.

Ramp Treasury helps teams:

• Improve visibility into cash across accounts
• Simplify treasury workflows and fund movement
• Maintain control over how and when they allocate operational vs. investment balances

Ramp does not provide investment advice. All movement between accounts is self-directed by the customer.

How Businesses Can Build Financial Resilience

Bank runs remain one of the most destabilizing events in finance, and digital communication has made them faster and more difficult to contain. While modern safeguards reduce the likelihood of catastrophic outcomes, they do not eliminate business-level risk—especially for companies with significant cash balances concentrated at one institution.

The most resilient companies:

• Diversify banking relationships
• Maintain liquidity buffers
• Monitor bank health
• Document contingency plans
• Understand where their cash sits and how quickly it can be accessed

Bank-run risk cannot be eliminated, but with thoughtful preparation, it can be effectively managed.

Ramp Business Corporation is a financial technology company and is not a bank. Bank deposit services provided by First Internet Bank of Indiana, Member FDIC. Customers with a Ramp Business Account can use the ICS service provided by IntraFi Network LLC. Subject to the terms of the applicable ICS Deposit Placement Agreement, First Internet Bank of Indiana, member FDIC, will place deposits at FDIC-insured institutions through IntraFi’s ICS service. A list identifying IntraFi network banks appears at https://www.intrafi.com/network-banks. Certain conditions must be satisfied for “pass-through” FDIC deposit insurance coverage to apply. To meet the conditions for pass-through FDIC deposit insurance, deposit accounts at FDIC-insured banks in IntraFi’s network that hold deposits placed using an IntraFi service are titled, and deposit account records are maintained, in accordance with FDIC regulations for pass-through coverage. Deposits are insured by the FDIC up to the maximum allowed by law; deposit insurance only covers deposits in the Ramp Business Deposit Account in the event of the failure of the FDIC-insured bank.

Securities products and brokerage services are provided by Apex Clearing Corporation. Apex Clearing Corporation is an SEC registered broker dealer, a member of FINRA and SIPC, and is licensed in 53 states and territories. FINRA BrokerCheck reports for Apex Clearing Corporation are available at: brokercheck.finra.org. The Investment Account is not a deposit product, not insured by the FDIC, and may lose value.

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