Discussion Paper
Bank Failures: The Roles of Solvency and Liquidity
Abstract: Do banks fail because of runs or because they become insolvent? Answering this question is central to understanding financial crises and designing effective financial stability policies. Long-run historical evidence reveals that the root cause of bank failures is usually insolvency. The importance of bank runs is somewhat overstated. Runs matter, but in most cases they trigger or accelerate failure at already weak banks, rather than cause otherwise sound banks to fail.
JEL Classification: H0;
https://doi.org/10.59576/lse.20260416
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https://libertystreeteconomics.newyorkfed.org/2026/04/bank-failures-the-roles-of-solvency-and-liquidity/
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Bibliographic Information
Provider: Federal Reserve Bank of New York
Part of Series: Liberty Street Economics
Publication Date: 2026-04-16
Number: 20260416