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7 posts on "bank runs"
August 12, 2024

Reallocating Liquidity to Resolve a Crisis

Decorative photo of silver spigot on blackboard with dollar signs chalked on the board coming out of the spigot.

Shortly after the collapse of Silicon Valley Bank (SVB) in March 2023, a consortium of eleven large U.S. financial institutions deposited $30 billion into First Republic Bank to bolster its liquidity and assuage panic among uninsured depositors. In the end, however, First Republic Bank did not survive, raising the question of whether a reallocation of liquidity among financial institutions can ever reduce the need for central bank balance sheet expansion in the fight against bank runs. We explore this question in this post, based on a recent working paper.

Posted at 7:00 am in Banks, Crisis, Liquidity | Permalink
November 6, 2023

Banking System Vulnerability: 2023 Update

decorative image: first republic bank building photographed from the ground looking up toward the sky with a few tall buildings next to it.

The bank failures that occurred in March 2023 highlighted how unrealized losses on securities can make banks vulnerable to a sudden loss of funding. This risk, which materialized following the rapid rise in interest rates that began in early 2022, underscores the importance of monitoring the vulnerabilities of the banking system. In this post, as in previous years, we provide an update of four analytical models aimed at capturing different aspects of vulnerability of the U.S. banking system, with data through the second quarter of 2023. In addition, we discuss changes made to the methodology based on the lessons from March 2023 and assess how the system-level vulnerability has evolved.

May 12, 2023

Banks Runs and Information

Decorative photo: outside doors of Signature Bank building with bank name over the doors.

The collapse of Silicon Valley Bank (SVB) and Signature Bank (SB) has raised questions about the fragility of the banking system. One striking aspect of these bank failures is how the runs that preceded them reflect risks and trade-offs that bankers and regulators have grappled with for many years. In this post, we highlight how these banks, with their concentrated and uninsured deposit bases, look quite similar to the small rural banks of the 1930s, before the creation of deposit insurance. We argue that, as with those small banks in the early 1930s, managing the information around SVB and SB’s balance sheets is of first-order importance.

Posted at 7:00 am in Banks, Crisis, Financial Institutions | Permalink
February 17, 2022

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

Photo: Depositors clamor to withdraw their savings from a bank in Berlin, 13 July 1931

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 policy. In this blog post and the staff report on which it is based, we go back in history and study a bank run that took place in Germany in 1931 in the absence of deposit insurance for insight.

November 16, 2020

How Has COVID‑19 Affected Banking System Vulnerability?

Kristian Blickle, Matteo Crosignani, Fernando Duarte, Thomas Eisenbach, Fulvia Fringuellotti, and Anna Kovner The COVID-19 pandemic has led to significant changes in banks’ balance sheets. To understand how these changes have affected the stability of the U.S. banking system, we provide an update of four analytical models that aim to capture different aspects of banking system […]

Posted at 7:00 am in Financial Institutions, Pandemic | Permalink
April 4, 2014

Why Large Bank Failures Are So Messy and What to Do about It?

If the Lehman Brothers failure proved anything, it was that large, complex bank failures are messy; they destroy value and can destabilize financial markets.

February 26, 2014

Factors that Affect Bank Stability

Thomas M. Eisenbach and Tanju Yorulmazer In a previous Liberty Street Economics post, we introduced a framework for thinking about the risks banks face. In particular, we distinguished between asset return risk and funding risk that can interact and cause a bank to fail. In our framework, a bank can fail for two reasons:

Posted at 7:00 am in Financial Institutions, Liquidity | Permalink
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