What would happen if everyone who had money deposited at a bank wanted to withdraw it at the same time?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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If literally everyone who had money deposited in a bank were to ask to withdraw that money at the same time, the bank would most likely fail.  It would simply run out of money. 

The reason for this is that banks do not simply accept people’s deposits and keep them, whether in cash or electronic form.  That would not make any financial sense as they would not make any money.  Instead, banks use the deposits to make loans or other investments.  This allows them to make money, but it also means that they do not have enough money on hand at any one time to cover all of their deposits.

Therefore, if everyone wanted their money all at once, the bank would fail.  It would not be able to (by contract) call in all its loans or liquidate all of its investments.  Therefore, it would not be able to satisfy all of the demands for withdrawals.

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