Why Do Banks Fail? Bank Runs Versus Solvency

Sergio Correia, Stephan Luck and Emil Verner

No 20241125, Liberty Street Economics from Federal Reserve Bank of New York

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 (search for similar items in EconPapers)
JEL-codes: G01 G2 (search for similar items in EconPapers)
Date: 2024-11-25
New Economics Papers: this item is included in nep-fdg, nep-his and nep-mon
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