Why would banks and exchanges need to pause withdrawals if they’re in financial trouble?
In: 101
Banks invest your money to make themselves money, and they can’t necessarily pull out of those investments fast enough. If you add up the totals in everyone’s accounts, this is *way* more than the bank actually has on hand. Your account balance is less an accurate representation of how much of your money the bank is holding and more a promise that they’re totally good for it when you need it. Normally this isn’t a problem – some people withdraw money, some deposit it, it pretty much balances out. But if large portions of their customer base try to withdraw all their money at once, the bank probably doesn’t have the money to give out.
This is exactly what happened to Northern Rock in the UK in 2008. News that they were struggling prompted lots of their customers to try to withdraw their money just in case they couldn’t later. Large numbers of people trying to withdraw money the bank didn’t have on hand is what then caused the bank to actually go under (the British government ended up stepping in to prevent people losing their money).
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