A “run on the bank” is a term that has been in the news lately and we probably have not heard it much since history class depending on your age. In the simplest terms it is when people such as your self quickly pull their deposits from a bank. If one person does this, that’s no big deal right? But when a large group pulls their money out of one particular bank around the same time it can cause pressure on the bank to find liquid cash to give back to their clients. Once that pressure is felt word spreads quickly causing more people and companies to want to ensure they don’t lose their financial savings and they too demand liquidity of their funds.

The presumed cause of this most recent “bank run” on the Silicon Valley bank (SVB) and others is that the value of Treasury bonds and other safe bonds that are held by many banks has declined over the past year as interest rates went up. When interest rates go up it causes, bond prices go down. Banks that invested in safe bonds over the past few years have seen their asset values go down significantly. Then when bank members or depositors come in large numbers to remove their funds, the banks are forced to sell their bonds for less then what they paid, resulting in an unfortunate downward spiral.

Keep in mind not all banks have invested in this way, and some will whether the storm just fine. We will see how many other banks may be impacted by the current crisis.