Brandon Lee
Banks can run out of cash due to a variety of factors, including a loss of confidence in the bank's stability, insufficient assets to cover liabilities, or a sudden surge in withdrawal demands. In recent years, there have been several instances of banks facing financial difficulties, such as the 2023 United States banking crisis, where banks like Silicon Valley Bank and First Republic Bank experienced significant cash outflows, leading to a sell-off of assets and a decline in stock prices. Additionally, the collapse of service provider AGS Transact Technologies in India resulted in thousands of ATMs from prominent banks running out of cash. These events highlight the vulnerability of banks to market forces and customer behavior, which can trigger a bank run and lead to liquidity issues.
| Characteristics | Values |
|---|---|
| Reason for banks running out of cash | Customers start withdrawing large amounts |
| Insolvency of the bank's service provider | |
| Banks sell their assets at a loss | |
| Banks don't keep much cash on hand due to security concerns | |
| Rumors or false information about a bank's financial health | |
| Banks affected | Silicon Valley Bank |
| First Republic Bank | |
| Silvergate Bank | |
| Credit Suisse | |
| State Bank of India | |
| ICICI Bank | |
| Axis Bank | |
| India Post | |
| Yes Bank |
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What You'll Learn
- Bank runs occur when many depositors lose confidence and withdraw funds at the same time
- Banks keep limited cash on hand due to security concerns and to earn revenue from loans
- A bank may sell assets at a loss to meet withdrawal demands, impacting its viability
- Banks may accumulate losses on asset sales, leading to insolvency and affecting their ability to operate
- ATMs may run out of cash due to operational issues or insolvency of the service provider
Bank runs occur when many depositors lose confidence and withdraw funds at the same time
Banks can run out of cash if customers start withdrawing large amounts of money at the same time. This is called a "bank run". Bank runs occur when many depositors lose confidence in a bank and withdraw their funds simultaneously. This can happen when a bank's assets are insufficient to cover its liabilities, such as when a bank lends too much money to a single borrower who defaults on the loan. In some cases, a bank run can be triggered by rumours or false information about a bank's financial health.
For example, in 2023, the US banking sector experienced a crisis. Silicon Valley Bank recorded an increase in its deposit holdings during the COVID-19 pandemic. However, when the Federal Reserve raised interest rates to curb inflation, some of the bank's clients started pulling money out to meet their liquidity needs. To pay for these withdrawals, the bank sold over $21 billion worth of securities, borrowed $15 billion, and held an emergency sale of treasury stock to raise $2.25 billion. The announcement, coupled with warnings from prominent Silicon Valley investors, caused a bank run as customers withdrew a total of $42 billion by the following day. The bank's share price fell by 60% and trading was halted on Friday morning.
Similarly, Silvergate Bank faced a bank run when deposits from cryptocurrency-related firms dropped by 68%, with clients requesting to withdraw upwards of $8 billion in deposits. As Silvergate did not have enough cash on hand, the bank began to sell its assets at a steep loss, realizing a loss of $718 million on withdrawal-related asset sales in the fourth fiscal quarter of 2022 alone.
Bank runs can also occur when banks do not have enough cash on hand to meet withdrawal demands. This can be due to security regulations and the need to generate revenue from loans and investments. In such cases, banks may have to sell off assets at a loss to generate liquidity, often at lower prices than they would have gotten if they weren't in a hurry. This can lead to true insolvency if the bank accumulates major losses on these asset sales, leaving it with no assets to liquidate.
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Banks keep limited cash on hand due to security concerns and to earn revenue from loans
Banks keep a limited amount of cash on hand due to security concerns and to earn revenue from loans and investments. This limited cash on hand can lead to a bank run if a large number of depositors withdraw their funds simultaneously due to a loss of confidence in the bank's stability. During a bank run, the bank may be forced to sell off assets at a loss to meet withdrawal demands, further damaging its reputation and financial stability.
For example, during the 2023 United States banking crisis, Silicon Valley Bank (SVB) experienced a significant cash outflow as clients withdrew their money. To meet these withdrawals, SVB sold part of its bond holdings at a loss of $1.8 billion. This move spooked the bank's clients, leading to a bank run as even more money was withdrawn. SVB's share price plummeted, and the bank was eventually taken over by the FDIC.
Similarly, Silvergate Bank faced a bank run in the wake of the FTX bankruptcy, with deposits from cryptocurrency-related firms dropping by 68%. As Silvergate did not have enough cash on hand to meet the withdrawal demands, it began selling its assets at a steep loss, realizing a loss of $718 million in the fourth fiscal quarter of 2022 alone.
In India, thousands of ATMs ran short of cash due to the collapse of service provider AGS Transact Technologies. AGS Transact, which operates and refills ATMs across the country, faced insolvency proceedings as its employees refused to refill ATMs due to non-payment of salaries. This resulted in prominent banks, including State Bank of India, Axis Bank, and ICICI Bank, facing difficulties in servicing their ATMs and keeping them stocked with cash.
To maintain liquidity and avoid excessive lending in the event of defaults, banks are required to keep a certain amount of cash on hand. However, due to security concerns and the potential to earn revenue from loans, most branches have in-house cash limits regulated by the Federal Reserve or similar entities. This limited cash on hand can lead to a bank run if withdrawal demands exceed the cash available, forcing the bank to sell assets to generate liquidity.
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A bank may sell assets at a loss to meet withdrawal demands, impacting its viability
Banks typically keep only a small percentage of their cash on hand due to security concerns and to generate revenue from loans and investments. This means that banks can quickly run out of money if customers start withdrawing large amounts at the same time. This is known as a "bank run" and can be triggered by a loss of confidence in the bank's stability, such as a rumour or false information about its financial health.
During a bank run, a bank may be forced to sell its assets at a loss to meet withdrawal demands. For example, during the 2023 United States banking crisis, Silicon Valley Bank (SVB) had to sell part of its bond holdings at a loss of $1.8 billion to meet withdrawals. This move, while intended to avoid further losses, spooked the bank's clients, leading to even more withdrawals and a major slump in the bank's shares.
Similarly, Silvergate, facing tight financial constraints, sold assets at a loss and borrowed money to maintain its liquidity. However, the bank eventually had to undergo voluntary liquidation and return all deposited funds to their owners.
Another example is the First Republic Bank (FRB), which experienced a bank run after SVB's collapse. Despite a $30 billion capital infusion from other banks, FRB's stock price plummeted, and the FDIC had to take it into receivership.
When a bank is forced to sell its assets at a lower price than their market value, it can pose significant risks to its viability and ability to continue operating. This is because the losses on these asset sales become realized, and the bank may be left with no assets to liquidate, leading to true insolvency.
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Banks may accumulate losses on asset sales, leading to insolvency and affecting their ability to operate
Banks typically keep only a small percentage of their cash on hand, opting instead to invest in loans and securities to generate revenue. This strategy can lead to a bank run when a large number of depositors simultaneously lose confidence in the bank's stability and rush to withdraw their funds. During a bank run, a bank may be forced to sell its assets at a loss to meet withdrawal demands. If the losses on these asset sales are significant, they can impair a bank's ability to continue operating.
For example, during the 2023 United States banking crisis, Silicon Valley Bank (SVB) experienced a bank run after its clients began withdrawing money to meet their liquidity needs in the face of rising interest rates. To raise cash for these withdrawals, SVB sold part of its bond holdings at a loss of $1.8 billion. This move spooked the bank's clients, leading to even more withdrawals and a major slump in the bank's share price. By midday, SVB had been taken over by the FDIC.
Another example is Silvergate Bank, which faced a bank run in the wake of the FTX bankruptcy. With deposits from cryptocurrency-related firms dropping by 68%, Silvergate did not have enough cash on hand to meet withdrawal demands and began selling its assets at a loss. The company realized a loss of $718 million on withdrawal-related asset sales in the fourth fiscal quarter of 2022 alone. Facing continued losses from selling securities at market price, Silvergate announced in March 2023 that it would undergo voluntary liquidation and return all deposited funds.
Similarly, the collapse of AGS Transact Technologies, an ATM service provider in India, caused thousands of ATMs across the country to run out of cash. AGS Transact employees refused to refill ATMs due to unpaid salaries, and the company eventually defaulted on its debt obligations. This led to a ripple effect of cash shortages at banks that relied on AGS Transact to service their ATMs, including State Bank of India, ICICI Bank, and Axis Bank.
In summary, banks may accumulate losses on asset sales during a bank run or financial crisis, leading to insolvency and impairing their ability to operate. These losses can be exacerbated by forced sales at steep discounts and can result in regulatory intervention or even liquidation.
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ATMs may run out of cash due to operational issues or insolvency of the service provider
ATMs are an integral part of modern banking, providing customers with 24/7 access to cash withdrawals, account information, and other banking services. However, ATMs may occasionally run out of cash, causing significant inconvenience to customers. This can happen due to operational issues or, in rare cases, the insolvency of the service provider.
Operational issues that can lead to ATMs running out of cash include card reader problems, cash dispensing malfunctions, and software glitches. Card readers may fail to recognize debit or credit cards due to wear and tear or debris accumulation, resulting in transaction failures. Hardware malfunctions in cash dispensing mechanisms can cause incorrect cash disbursements, jams, or failures to release cash. Software-related issues, such as transaction errors or security breaches, can also disrupt ATM operations and impact the availability of cash.
In rare instances, ATMs may run out of cash due to the insolvency or abrupt collapse of the service provider. For example, in April 2025, ATM Solutions Inc., a third-party cash servicing vendor, suddenly ceased operations, citing "unforeseen business circumstances." This left thousands of ATMs across 12 states without cash replenishment, affecting credit unions and their members' access to cash. Such events highlight the importance of operational resilience and the need for backup plans when critical service partners encounter financial difficulties.
To mitigate the impact of ATMs running out of cash, banks and credit unions should focus on enhancing operational reliability and implementing effective contingency measures. This includes regular maintenance and prompt addressing of technical issues. Additionally, transparent communication with customers and the provision of alternative cash access points during outages can help alleviate dissatisfaction and maintain trust in the financial institution.
While it is uncommon for banks themselves to run out of cash, it is worth noting that banks typically keep only a small percentage of their cash on hand due to security concerns and revenue generation from loans and investments. In the event of a bank run, where a large number of customers simultaneously withdraw funds due to a loss of confidence, banks may struggle to meet the surge in demand and accumulate losses, ultimately leading to true insolvency.
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Frequently asked questions
A bank run occurs when a large number of customers simultaneously withdraw their funds from a bank, often due to a loss of confidence in the bank's stability. This can happen when a bank's assets are insufficient to cover its liabilities or when there are rumours or false information about a bank's financial health.
Banks are required to maintain a certain level of liquidity to avoid excessive lending in the event of defaults. However, they do not keep a large amount of cash on hand due to security concerns and to generate revenue from loans and investments. During a bank run, banks may have to sell off assets to generate liquidity, often at a loss.
A bank run can lead to a major slump in the bank's shares, as seen in the case of Silicon Valley Bank in 2025. If the bank is unable to meet the sudden surge in withdrawal demands, it may accumulate major losses on asset sales, leading to true insolvency.
During the 2023 United States banking crisis, there were bank runs at Silicon Valley Bank, First Republic Bank, and Credit Suisse. In March 2025, ATMs of prominent banks in India, such as State Bank of India and ICICI Bank, ran short of cash due to the insolvency of the service provider AGS Transact Technologies.
It is essential to stay informed about the financial health of your bank and the wider banking sector. Diversifying your funds across multiple banks and ensuring your deposits are insured can help protect your money. Understanding the early warning signs of a bank run, such as an increase in customers withdrawing their funds, can also help you make timely decisions to protect your finances.
