Once upon a time, holes, goldsmith homes, and various concealed places in our abode were ideal havens for our money and valuables. Today, thanks to modernization, many individuals prefer to store their money and other valuables in banks. Banks are one of those financial institutions charged with securing your money and making them available to you whenever you need it. Moreover, money deposited in a bank can be withdrawn whenever you wish. All you have to do is make a withdrawal using any of the provided means. But, come to think of it, can a bank run out of cash if several people request withdraws?
A bank can run out of money, especially when the majority of its customers simultaneously decide to withdraw their deposits over concerns of the bank’s solvency. When this happens, a bank’s reserve may be unable to meet the huge withdrawal requests.
Whenever we receive a paycheck, probably at the end of the month, many of us often prefer to store it in the bank. Sometimes, we may decide to take some money out of the paycheck and leave the rest in the bank. When expenses arise, maybe we need some money to settle the tuition fees of our kids, go on a vacation, or go shopping; we’ll always want to withdraw money from our account to settle the expenses. Whenever you withdraw money from your account, have you ever thought of the possibility of your bank running out of money? Do you want to know if it’s possible? If yes, this article is for you.
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Can a Bank Run Out of Money?
Whenever you think of banks, the chances are that you’ll think of money as well. This is because banks are financial institutions associated with money. If you want to deposit your money, a bank is your best bet. If you want to deposit a valuable item, like a piece of expensive jewelry or painting, you may want to consider a bank. What if you want to take a loan? Of course, you may want to visit a bank as well.
Aside from providing you with a means to deposit your money, banks also do well to provide you with suitable means to withdraw your money. So whenever you wish to pull out your money from a bank, probably due to pressing expenses, you can always walk up to the banks and initiate a withdrawal. Or if you are like me, who like comfort, you can leverage ATM.
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We all understand that banks keep a huge amount of money. In addition, we know that they have lots of customers, some of whom withdraw or transfer a huge amount of money frequently.
That said, if, for instance, several bank customers decide to withdraw money from a bank, will it run out of money? I bet you have thought about this, maybe once or twice. But because you aren’t sure of the answer, you probably brushed it aside.
As we progress, I’ll let you know if indeed banks might have insufficient cash amount . If yes, I’ll tell you why. So what can make a bank, a financial institution that controls a huge amount of money, run out of cash? It’s quite an irony, right?
Well, before we delve into that question, let’s consider what a bank is.
What Is a Bank?
A bank is a financial institution that handles deposits and advances, including other related services. It receives money from those who want to save in the form of deposits and lends money to those who need it.
Major features of a bank are:
- Dealing in money
- Acceptance of deposits
- Giving advances
- Payment and withdrawal
Having understood what a bank is, let us consider the main purpose of this article:
Yes, a bank might have insufficient cash amount . For example, when more customers withdraw their money, there is a tendency to default, which will activate more withdrawals to a point where the bank runs out of cash. This is often regarded as a bank run.
An uncontrolled bank run can result in bankruptcy, and when several banks are involved, it leads to an industry-wide panic that can result in an economic recession.
How Much Do Banks Keep In the Vault?
Have you ever thought about how much cash sits in a bank vault? Even if you aren’t planning a bank heist, you may still be keen to know how much they have housed in their vault. (In other words, whether your bank is capable of providing you with the total cash for your deposits.) Unfortunately, we can’t provide you with details regarding your bank specifically. However, we have a stat for the banking system as a whole.
Based on a statistics, banks hold about $75 billion in their vaults at any time, which translates to about $230 for each U.S resident. This doesn’t seem like a lot, as several individuals have more than that deposited in an account.
Of course, a principal function of banks is to offer loans; and they use your deposits for this aim. Under normal times, only a fraction of deposits are claimed at any moment, so the leftover cash in the banks is enough to cover the demand. Should that not be the case, the Federal Reserve can provide the required cash as a loan, provided the bank is solvent.
Major reasons why banks might have insufficient cash amount:
- Bank runs
- Debt
- Panic
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What Happens if Banks Run Out of Money?
Having been aware that banks can have insufficient cash amount , I bet you will be eager to find out what happens when they do. For example, say a bank run occurs, and several customers withdraw their money, leaving your bank with nothing, what will happen afterward?
If a bank runs out of money, the Federal Reserve will provide the required cash as a loan, provided the bank is solvent. In the event that the bank collapses, the FDIC will allow a bank with high capital reserves to acquire the vulnerable bank alongside its customers.
While the possibility of a bank running out of money is rare, you should do adequate research before depositing your money in a bank.
