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Keywords:deposit insurance 

Journal Article
Opinion: Why Do Bank Runs Happen?

The first half of 2023 has reminded us once again that banks are not immune from failure. In early March, Silicon Valley Bank (SVB) suffered a run on deposits and quickly collapsed. Its closure was followed by the failure of Signature Bank, a smaller bank, two days later. And even more recently, regulators exerted considerable effort to arrange the sale of First Republic Bank to a larger bank. The Fed was responsible for supervising and regulating SVB, and it recently issued its report examining what went wrong. I encourage you to take a look.
Econ Focus , Volume 23 , Issue 2Q , Pages 32

Discussion Paper
How (Un-)Informed Are Depositors in a Banking Panic? A Lesson from History

How informed or uninformed are bank depositors in a banking crisis? Can depositors anticipate which banks will fail? Understanding the behavior of depositors in financial crises is key to evaluating the policy measures, such as deposit insurance, designed to prevent them. But this is difficult in modern settings. The fact that bank runs are rare and deposit insurance universal implies that it is rare to be able to observe how depositors would behave in absence of the policy. Hence, as empiricists, we are lacking the counterfactual of depositor behavior during a run that is undistorted by the ...
Liberty Street Economics , Paper 20220217

Discussion Paper
Why Do Banks Fail? Three Facts About Failing Banks

Why do banks fail? In a new working paper, we study more than 5,000 bank failures in the U.S. from 1865 to the present to understand whether failures are primarily caused by bank runs or by deteriorating solvency. In this first of three posts, we document that failing banks are characterized by rising asset losses, deteriorating solvency, and an increasing reliance on expensive noncore funding. Further, we find that problems in failing banks are often the consequence of rapid asset growth in the preceding decade.
Liberty Street Economics , Paper 20241121

Discussion Paper
Why Do Banks Fail? The Predictability of Bank Failures

Can bank failures be predicted before they happen? In a previous post, we established three facts about failing banks that indicated that failing banks experience deteriorating fundamentals many years ahead of their failure and across a broad range of institutional settings. In this post, we document that bank failures are remarkably predictable based on simple accounting metrics from publicly available financial statements that measure a bank’s insolvency risk and funding vulnerabilities.
Liberty Street Economics , Paper 20241122

Journal Article
The FDIC Studies “Options for Deposit Insurance Reform”

The FDIC favors targeted coverage of large accounts used for business payments when considering deposit insurance reform.
Economic Synopses , Issue 14 , Pages 2 pages

Speech
A level playing field for deposit insurance

Dallas Fed President Lorie K. Logan delivered these remarks at the Dallas Fed and Atlanta Fed conference, “Exploring Conventional Bank Funding Regimes in an Unconventional World.”
Speeches and Essays

Working Paper
Risky Mortgages, Bank Leverage and Credit Policy

Two key channels that allowed the 2007-2009 mortgage crisis to severely impact the real economy were: a housing net worth channel, as defined by Mian and Sufi (2014), which affected the wealth of leveraged households; and a bank net worth channel, which reduced the ability of financial intermediaries to provide credit. To capture these features of the Great Recession, I develop a DSGE model with balance-sheet constrained banks financing both risky mortgages and productive capital. Mortgages are provided to agents facing idiosyncratic housing depreciation risk, implying an endogenous default ...
Finance and Economics Discussion Series , Paper 2015-110

Working Paper
Origins of Too-Big-to-Fail Policy

This paper traces the origin of the too-big-to-fail problem in banking to the bailout of the $1.2 billion Bank of the Commonwealth in 1972. It describes this bailout and those of subsequent banks through that of Continental Illinois in 1984. Motivations behind the bailouts are described with a particular emphasis on those provided by Irvine Sprague in his book Bailout. During this period, market concentration due to interstate banking restrictions is a factor in most of the bailouts, and systemic risk concerns were raised to justify the bailouts of surprisingly small banks. Sprague?s ...
Working Papers (Old Series) , Paper 1710

Working Paper
Shadow Bank Runs

Short-term debt is commonly used to fund illiquid assets. A conventional view asserts that such arrangements are run-prone in part because redemptions must be processed on a first-come, first-served basis. This sequential service protocol, however, appears absent in the wholesale banking sector---and yet, shadow banks appear vulnerable to runs. We explain how banking arrangements that fund fixed-cost operations using short-term debt can be run-prone even in the absence of sequential service. Interventions designed to eliminate run risk may or may not improve depositor welfare. We describe how ...
Working Papers , Paper 2020-012

Report
Who Can Tell Which Banks Will Fail?

We study the run on the German banking system in 1931 to study whether depositors anticipate which banks will fail. We find that deposits decline by around 20 percent during the run. There is an equal outflow of retail and non-financial wholesale deposits from both failing and surviving banks. In contrast, we find that interbank deposits decline almost exclusively for failing banks. Our evidence suggests that while regular depositors are uninformed, banks have precise information about which banks will fail. In turn, banks being informed allows the interbank market to continue providing ...
Staff Reports , Paper 1005

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