Intuitively, the way an unregulated bank works is something like this. You — the shareholder and chief executive officer — start a bank and put up $10 of your own money as initial capital. The bank has $10 of shareholder equity, takes $100 of deposits and makes $110 of loans. If the loans get paid back with interest, then the bank ends up with, say, $116, it pays $103 to its depositors (with interest), and you get your $10 back with $3 of profits. If $20 worth of the loans default, then the bank has only $90 (plus some interest, so, say, $94); the depositors get back 94 cents on the dollar and you lose everything.

But this all happens over time. The bank borrows short to lend long: The depositors can ask for their money back at any time, but most days most of them don’t, so the bank can make long-term loans that pay higher interest. One thing this means is that if all of the bank’s loans are perfectly good, but all the depositors ask for their money back at once, the bank won’t have it; it will have to sell its loans at discounted prices to raise money, and the depositors will end up getting back less than they put in. The “run on the bank” will itself cause the depositors (and shareholders) to lose money.