Some behaviors in financial markets will bring bad consequences. Among many actions, the consequences of a run are very bad and can lead to the collapse of the entire financial system. So what does a run mean?

What does a run mean?

In the credit currency system, a run refers to the behavior of a large number of bank customers concentrating on the bank to withdraw cash. The bank itself generates benefits through lending, so a considerable part of its funds is used to lend to generate interest income. The bank will only reserve a portion of the funds to meet customers' cash withdrawal needs. If a run occurs, it is likely to cause the failure of one bank and even affect the entire financial market, leading to the collapse of the entire banking industry.

Under what circumstances will a run occur? From the perspective of an individual bank, if there are major problems with the bank's reputation and operations, it will lead to customer distrust, which will trigger a run; as far as the entire financial system is concerned, if the demand for liquidity suddenly increases over a period of time, it will also lead to a run. For example, when the stock market and property market cause panic and investors withdraw their capital in large numbers, then stocks and real estate must be converted into cash, and a run will occur.