15 Bank Runs , Deposit Insurance , and Liquidity

  title={15 Bank Runs , Deposit Insurance , and Liquidity},
  author={Douglas W. Diamond and Philip H. Dybvig},
Bank runs are a common feature of the extreme crises that have played a prominent role in monetary history. During a bank run, depositors rush to withdraw their deposits because they expect the bank to fail. In fact, the sudden withdrawals can force the bank to liquidate many of its assets at a loss and to fail. In a panic with many bank failures, there is a disruption of the monetary system and a reduction in production. Institutions in place since the Great Depression have successfully… CONTINUE READING
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