Bank Runs With and Without Bank Failure

Department: Finance

Speaker: Stephan Luck (Fed)

Room: T004

Abstract

We study the causes and consequences of bank runs using a novel database
of 3,984 runs on individual banks in the United States from 1863 to 1934,
constructed by applying textual analysis and large language models to historical
newspapers. Runs are considerably more likely in weak banks but also
occur in strong banks, especially in response to negative news about the real
economy or the broader banking system. However, runs typically result in
failure only for banks with poor fundamentals. Strong banks survive runs
through various mechanisms, including signaling strength, interbank cooperation,
and temporary suspension. At the local level, runs on banks with poor
fundamentals translate into substantially larger declines in deposits, lending,
and manufacturing activity than runs on strong banks. Our findings imply
that poor fundamentals are central to explaining both when runs occur and
when they have severe economic effects, tempering the view that small shocks
can generate discontinuous