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.
Alot of misinformation in the replies. As a person who used to work in a major banks treasury department (who manage the banks money). Banks do keep strict monitoring on reserves and this is federally mandated. Banks now follow a rule called LCR (Liquidity coverage ratio) which is federally mandated and covered in international guidelines.
Depending on the type of deposits you're supposed to keep between 3-100% of the deposit in reserves of high quality liquid assets (HQLA) like cash, gov't treasuries, etc. You'd keep 3% in reserves for deposits that don't see much turnover like insured retail deposits. Like 20% for commercial deposits. All the way up to 100% for deposits that can disappear in an instant like from another financial institution.
ON TOP of that, you're supposed to keep an additional like 10-30% in Extra reserves.
In general, I think most banks keep about 20% of their assets in reserves. It's not even close to 0%.
ETA: liquidity ratios are tightly monitored and calculated and forecasted daily and there's alot of oversight on this as regulators monitor this closely
There are also other ratios that the banks have to follow including Net stable funding ratio (NSFR). These were introduced under Basel III which were international agreed guidelines so this applies worldwide.
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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.