What it means
The most widely known meaning is a bank run, where many depositors try to take their money out at the same time because they fear the bank may fail. Because banks keep only a fraction of deposits as cash and lend out the rest, even a healthy bank can struggle when too many people ask for their money at once.
Fear alone can turn into a real cash shortage. In bond and money markets, a run has a different meaning: it is a list of bid prices (what a dealer will pay) and offer prices (what a dealer will sell at) for a group of securities or maturities.
Dealers send these lists to one another and to clients so that everyone can see where the market is trading. Traders may talk about "getting the runs" in the morning to see the day's prices.
A third usage describes a sharp, fast price move. Traders say a stock "ran" when it rose quickly on heavy volume, or that there was a run on a currency when many people sold it at once.
These moves can feed on themselves because the price rise or fall attracts more buyers or sellers. Why does this matter to a business owner?
A bank run is the reason deposit insurance, liquidity rules and central bank lending exist. A treasurer who keeps cash with a single institution should understand how a run starts and what protections apply.
Context tells you which meaning is intended. A news headline about a run on a bank is about depositor panic, while a bond trader asking for a run wants a price list.
For treasurers, the practical lesson is to match cash holdings to the speed at which money could be demanded. Holding a layer of cash and short-dated government securities, spreading balances across several banks and knowing the limits of deposit insurance are all simple defences against a sudden rush for the exit.
In practice
Real-world examples.
Example
News spreads on social media that a regional bank may be in trouble, and thousands of customers try to move their savings the same day. The bank's cash reserves are quickly stretched, even though most of its loans are performing.
Example
A corporate bond trader opens her screen in the morning and asks three dealers for their runs. Each sends bid and offer prices for 20 bonds, and she picks the dealer offering the best price for the issue her client wants to sell.
Example
A small technology stock jumps 40% in two days after an upbeat product announcement. Traders describe the move as a run, and some wait for it to pull back before buying.
Formula
Calculation
Bank run coverage ratio = Liquid assets / Deposits withdrawn.
Imagine a small bank with $100,000,000 of deposits and $12,000,000 of cash and easily sold securities. If worried depositors withdraw 15% of deposits, that is $100,000,000 x 0.15 = $15,000,000. The coverage ratio is $12,000,000 / $15,000,000 = 0.80, which means the bank can meet only 80% of the demand from liquid assets and must sell other assets or borrow to cover the $3,000,000 shortfall. In practice regulators and banks run this test with many different withdrawal percentages, from 5% up to 30%, to see at what point liquid assets are exhausted.Case study
Seen in the real world.
Harbour Mutual Savings is an entirely fictional community lender with $500,000,000 in deposits. A rumour about losses on a property loan spreads through local group chats, and in this illustrative story customers withdraw $60,000,000 in two days.
The bank holds $45,000,000 in cash and government securities, so the treasurer quickly arranges a short-term loan from the central bank's lending facility and sells some bonds to cover the gap. The bank also publishes a clear statement about the loan in question, showing that it is small relative to capital.
Withdrawals slow within a week and some customers return. The illustrative lesson is that liquidity, not just solvency, decides whether a run becomes a failure, and that fast, honest communication matters. The board also agreed to hold a larger cushion of cash than it had before the episode, accepting a small cost in lower interest income in return for greater safety.
Watch out
Common mistakes.
- Assuming a bank run only happens to weak banks, when fear can cause withdrawals from sound ones.
- Using the word run without context, which can confuse colleagues who think of price lists rather than panic withdrawals.
- Assuming a stock that has run up quickly will keep rising, when sharp moves often reverse.
Questions
People also ask.
What stops a bank run?
Deposit insurance, strong capital and liquidity, and access to central bank lending all reduce the incentive to rush for the exit.
What is a dealer run in the bond market?
It is a list of bid and offer prices for several securities that dealers share with each other and with clients.
Is a run always bad?
Not always, since a price run can reflect real good news, but it can also be driven by hype and may reverse.
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