FrameworkCase studyBankingCrises and market history
A bank run is a maturity mismatch, not a solvency problem
It's a Wonderful Life · 1946
The idea
A bank takes deposits that can be withdrawn today and lends them out for years. On any normal day that works, because only a few depositors want their money at once. The structure fails if enough of them ask together, and it fails whether or not the loans are good. That is the scene in It's a Wonderful Life: a solvent lender, with the money out in mortgages, facing a crowd that wants cash now. Deposit insurance exists to stop the crowd forming, by making the wait safe. The same mismatch sits under 2008's wholesale funding and the 2023 regional bank runs.
A bank fails when its liabilities come due faster than its assets, which can happen to a solvent bank.
When it works
Any banking interview question on runs, deposit insurance, liquidity rules or March 2023.
When it may fail
Modern runs happen in hours over phones and in wholesale markets, not in a lobby. The mechanism is the same; the speed is not, and liquidity rules were written for the older pace.
How to use it
Explain a run in three sentences: what the bank owes and when, what it owns and when it pays, and what happens when the first comes due before the second. Then name the tool that stops it, deposit insurance or a lender of last resort.
Where it came from
Film It's a Wonderful Life · 1946
What the source says. A 1946 film contains the cleanest bank run on screen: a solvent building and loan, its money out in long mortgages, facing depositors who want cash today.
Connected ideas
Takes it further
Illiquid and insolvent are different problems with different rescuesLending cures illiquidity; only capital cures insolvency. Decide which problem you have before choosing the remedy.
Puts it to work
Deposit betas kept rising after March 2023, but the run did not change their pathThe 2023 runs redistributed deposits towards the largest banks and exposed a pricing gap that already existed; they did not reprice the system.
Says something similar
Net interest margin is made on the deposit side, and deposit betas say howA bank's margin in a hiking cycle is decided by how slowly it reprices its deposits, measured as the deposit beta.
Concepts
Put it to work on L3VLUP
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