A run on the bank occurs in a fractional reserve banking system when a large number of customers withdraw their deposits from a financial institution at the same time and either demand cash or transfer those funds into government bonds or precious metals or a safer institution because they believe that the financial institution is, or might become, insolvent. (wikipedia)
Now this happens because people no longer believe in the safety of their asset with a particular institution. In this case money with the bank.
An analogous case would be a stock market. So what will happen when a lot of people lose faith in a particular stock. Naturally, there is a run on the stock.
Run on the stock
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| run on a stock! |
So when the housing bubble and financial services crisis occurred, there was an unprecedented increase in stock market volumes (market activity). clearly the rise in the volumes coincides with the bubble.
A word of caution: Bubbles like most economic disasters can only be predicted by most people in hindsight and not in foresight. In technical terms this is a lag indicator rather than a lead indicator.
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