Uncertainty

Carefully explain why uncertainty over deposit levels is a big deal for banks?

Banks are clearly the oldest and most important financial market intermediary which brings the potential borrowers and lenders together, provides liquidity that drives the economy and provides the medium of exchange. We know a bank can be defined as a type of financial institution that originates loans as well as maintains deposits for account holders that are federally insured.
Although the type of services offered by a bank depends upon the type of bank and the country, services provided usually include: directly taking deposits from the general public and issuing checking and savings accounts; lending out money to companies and individuals; cashing checks, facilitating money transactions such as wire transfers and cashiers checks; issuing credit cards, ATM, and debit cards and online banking. Clearly the one common thread which runs through all these functions is the ability of banks to make liquidity available most immediately on demand and other times as expeditiously as possible. Therefore at a basic level the continued and assured availability of deposits is a critical component of the bank’s liquidity and any uncertainty regarding deposits is necessarily of concern to banks.
A bank raises funds by attracting deposits, borrowing money in the inter-bank market, or issuing financial instruments in the money market or a securities market. The bank then lends out most of these funds to borrowers. However, it would not be prudent for a bank to lend out all of its balance sheet. It must keep a certain proportion of its funds in reserve so that it can repay depositors who withdraw their deposits. The one event which can severely impair a bank’s reputation and can therefore create a run on the bank is the bank’s inability even if temporarily to repay a depositor to withdraw his/her deposit or a portion thereof. Depositor panic psychology has been seen far too often to result in bank failures under such circumstances. That is why uncertainties related to deposit levels, even if misconceived, are danger signals which banks take very seriously.
Therefore there are provisions in every country for Bank reserves which are typically kept in the form of a deposit with a central bank. This is called fractional-reserve banking and it is a central issue of monetary policy. Some governments (or their central banks) restrict the proportion of a bank's balance sheet that can be lent out, and use this as a tool for controlling the money supply. Even where the reserve ratio is not controlled by the government, a minimum figure will still be set by regulatory authorities as part of banking supervision.
The traditional bank has an inherent susceptibility to crisis, in that it borrows short term and lends leveraged long term. The sum of deposits and the bank's capital will never equal more than a modest percentage of the loans the bank has outstanding. Even if liquidity is not a concern, if there is no run on the bank, banks can simply choose a bad portfolio of loans, or more precisely incorrectly price the interest rates of those loans, and lose more money than they have.