Journal Article

Why Banks Fail

Abstract: Why do banks fail? One popular view emphasizes the role of bank runs, when a bank's customers collectively withdraw their money on the belief that the bank will soon fail. Bank runs, according to this view, can cause otherwise healthy banks to fail — the panic itself creates a self-fulfilling prophecy. This is often cited as an important cause of bank failures during the Great Depression, the 2008 financial crisis, and the 2023 U.S. banking crisis. A recent paper, however, casts serious doubt on this narrative.

Bibliographic Information

Provider: Federal Reserve Bank of Richmond

Part of Series: Econ Focus

Publication Date: 2025-12-16

Volume: 25

Issue: 4Q

Pages: 29