Bank Failures: The Roles of Solvency and Liquidity

Sergio Correia, Stephan Luck and Emil Verner

No 20260416, Liberty Street Economics from Federal Reserve Bank of New York

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.

Keywords: bank runs; bank failures; deposit insurance; bank regulation; bank supervision (search for similar items in EconPapers)
JEL-codes: H0 (search for similar items in EconPapers)
Date: 2026-04-16
New Economics Papers: this item is included in nep-fdg, nep-his and nep-mon
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Related works:
Working Paper: Bank Failures: The Roles of Solvency and Liquidity (2026)
Working Paper: Bank Failures: The Roles of Solvency and Liquidity (2026)
Working Paper: Bank Failures: The Roles of Solvency and Liquidity (2026)
Working Paper: Bank Failures: The Roles of Solvency and Liquidity (2026)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fednls:103048

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DOI: 10.59576/lse.20260416

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