Discussion Paper

Why Do Banks Fail? Bank Runs Versus Solvency


Abstract: Evidence from a 160-year-long panel of U.S. banks suggests that the ultimate cause of bank failures and banking crises is almost always a deterioration of bank fundamentals that leads to insolvency. As described in our previous post, bank failures—including those that involve bank runs—are typically preceded by a slow deterioration of bank fundamentals and are hence remarkably predictable. In this final post of our three-part series, we relate the findings discussed previously to theories of bank failures, and we discuss the policy implications of our findings.

Keywords: bank runs; financial crises; deposit insurance; bank failures;

JEL Classification: G01; G2;

Access Documents

Authors

Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Liberty Street Economics

Publication Date: 2024-11-25

Number: 20241125