In practice, the cash still probably ends up at a bank, just in a different account. I don't think anyone is going to pull it out and start burying it in their back yard.
It still can trigger bank failures like the article is describing, though. Consumer pulls it out of one bank, creating a cash crunch there, and forces them to liquidate treasuries and realize large losses that had previously only been on paper. That bank is now insolvent. The bank that the recipient deposits them into now has more cash in hand, but they weren't facing a cash crunch in the first place. Some (bigger and more conservative) banks are going to end up doing great, but the financially weaker ones are going to get flushed out.
Think of it like a pot of superheated water. As long as it remains undisturbed it continues to be un-boiled, even though the temperature is above the boiling point. As soon as you jostle it, though, everything erupts. The movement was just a catalyst - the problem was that the underlying state existed in an unstable equilibrium.
Why would it get pulled out of the bank? Where would it go? I don't believe we'll see an epidemic of folks suddenly wanting to store their life savings under the mattress.
My family has withdrawn ~95% of our bank holdings after looking into the health of banks and the broader financial system. Not going to say too much, but the funds didn’t reenter the banking system.
Think of it like a pot of superheated water. As long as it remains undisturbed it continues to be un-boiled, even though the temperature is above the boiling point. As soon as you jostle it, though, everything erupts. The movement was just a catalyst - the problem was that the underlying state existed in an unstable equilibrium.