New York Fed researchers found that bank runs turn into bigger problems when financial institutions’ broader underlying health is under challenge. The researchers used a new database powered by artificial intelligence to extract information on bank runs from millions of digitized historical newspaper pages, creating the most comprehensive database of bank runs in U.S. history.
Understanding Bank Runs
Poor bank fundamentals are necessary for bank runs to translate into failure and for bank distress to generate severe economic distress, according to the research. The researchers noted that runs can occur in both weak and strong banks, but poor fundamentals are necessary for runs to result in bank failures.
The study highlights the importance of properly understanding bank runs, where declining confidence in an institution drives depositors to try to recover their deposits en masse. The researchers emphasized that runs should be seen as a trigger for bank failures and crises, but insolvent banks are necessary for this trigger to devastate the banking system and the economy.
Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.
