A situation where many customers withdraw their money from a bank at the same time because they fear the bank may fail. Banks typically keep only a small portion of deposits in cash on hand, expecting that not everyone will withdraw at once. If too many people withdraw simultaneously, the bank may not have enough cash and could collapse.
A bank holds $100 million in deposits but keeps only $10 million in cash reserves. If rumors spread that the bank is unsafe, thousands of customers might try to withdraw money on the same day. If $50 million in withdrawal requests come in, the bank cannot pay everyone and may be forced to close.
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