financial sector, financial regulation, the role of central banks (lender of last resort), structure of commercial banks’ balance sheet, market failure, information asymmetries
If depositors are worried that a bank is about to become insolvent, they may rush to the bank to withdraw their money, to avoid losing their savings. In these circumstances, it may be perfectly rational for depositors to wish to withdraw their money, but bank runs can in theory take place on perfectly solvent banks, simply because depositors are worried that the bank will not be able to repay its debts. As we will see in this article, the bank run itself can then cause the bank to become insolvent.
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