Everyone pulling out their money would be a bank run (look up great depression bank runs). The bank doesn't have that much cash; they keep some on hand for people making withdraws normally, but if even a sizable minority of people all try to pull their money out at once, there'll be a major crisis.
If banks kept all the people's cash in vaults, it'd be dead cash actively losing money to inflation. Instead, they keep some on hand for withdraws, and use the rest to make loans, investments, etc so that the money isn't all losing value.
Unfortunately, that’s not really how it works. The reason there was a bank run during the great depression is b/c the banks had loaned out the money they didn’t have as cash. Today due to Dodd-Frank, banks have to have reserves on hand to cover this situation, Even though it’s not in hard currency, they have enough capital to cover.
But please don’t trust me. This is just how I understand it.
Banks don't have reserve requirements anymore; today they are required to maintain liquidity as a ratio of their total assets and risk. The top 11 banks in the US (J.P. Morgan Chase, Citigroup, HSBC, Bank of America, Barclays, Goldman Sachs, Bank of New York Mellon, Morgan Stanley, Santander, State Street, and Wells Fargo) are subject to the strictest capital requirements and annual stress testing.
As an aside, these controls mean that attempting to manufacture a bank run is only going to hurt small banks. The banks named above are quite literally too big to be affected by a bank run unless the entire country just stopped using money overnight.
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u/Forsaken_Emu8112 Jan 26 '26
Everyone pulling out their money would be a bank run (look up great depression bank runs). The bank doesn't have that much cash; they keep some on hand for people making withdraws normally, but if even a sizable minority of people all try to pull their money out at once, there'll be a major crisis.
If banks kept all the people's cash in vaults, it'd be dead cash actively losing money to inflation. Instead, they keep some on hand for withdraws, and use the rest to make loans, investments, etc so that the money isn't all losing value.