In banking and financial markets, which description best explains the term “bank run”?

Introduction / Context:
Banking stability is an important topic in economics and finance. One well known phenomenon related to banking crises is a “bank run”. This happens when many depositors lose confidence in a bank and rush to withdraw their money, potentially causing serious liquidity problems. The question is checking whether you can identify the correct description of a bank run among several related but different banking concepts.

Given Data / Assumptions:

• We are dealing with a commercial bank that accepts deposits from the public.
• Depositors are free to withdraw their funds subject to the terms of their accounts.
• There is a sudden, widespread loss of confidence among depositors.
• The problem is primarily about liquidity and confidence, not routine accounting ratios.

Concept / Approach:
A bank run occurs when a large number of depositors try to withdraw their funds in cash at the same time because they fear that the bank may become insolvent or may not be able to return their money later. Since banks operate on a fractional reserve basis, they do not keep all deposits in cash. Instead, they lend most of the deposits out. When too many depositors demand cash simultaneously, the bank can face a liquidity crisis even if its assets are fundamentally sound. Understanding this concept helps explain why deposit insurance and central bank lender of last resort facilities are important.

Step-by-Step Solution:
Step 1: Focus on the key word “bank run”, which is usually associated with panic and mass withdrawals. Step 2: Recall that the core feature of a bank run is many depositors trying to withdraw money at the same time. Step 3: Compare each option to see which one captures this panic withdrawal situation. Step 4: Select the option that explicitly mentions deposit holders withdrawing cash in a panic situation.

Verification / Alternative check:
A memory aid is to think of people “running” to the bank to get their money out. The term does not refer to a normal accounting ratio or a routine end of day cash balance. It refers to an abnormal, crisis situation. Therefore, any option that describes a routine measure or a regular period of operations can be rejected.

Why Other Options Are Wrong:
The net balance of money in the bank's chest at the end of the day: This is a simple cash position, not a bank run.
The ratio of a bank's total deposits and total liabilities: This could describe some financial ratio but has nothing to do with the panic withdrawal phenomenon.
The period in which a bank creates the highest credit in the market: This might relate to credit expansion but is unrelated to sudden withdrawal of deposits due to panic.

Common Pitfalls:
Students sometimes confuse a bank run with normal liquidity management or with vague ideas about high lending periods. Another pitfall is to think that a bank run always reflects actual insolvency. In fact, even a solvent bank can face a run if depositors lose confidence. The key idea is panic driven mass withdrawals, not normal operations.

Final Answer:
A bank run is best described as a panic situation when deposit holders start withdrawing cash from the bank in large numbers.