by Vern McKinley
Cato Institute
April 14, 2014
Policy Analysis
Throughout history there has been a consistent fear of bank runs, particularly regarding large institutions during times of crisis. The financial crisis of 2007-09 was no exception. The Financial Crisis Inquiry Commission, which was created after the crisis, highlighted no less than 10 cases of runs at individual institutions. Those runs were a major consideration in the shifting policy responses that authorities employed during the crisis. Yet, simple rules elaborated by Walter Bagehot and Anna J. Schwartz involving a systemic review of the condition of the financial system, prompt intervention, and consideration of the condition of individual institutions could have prevented the numerous ill-advised bailouts. Additionally, evidence that the runs were not indicative of a pending collapse of the system, but were rather a simple matter of migration of deposits from weaker institutions to stronger institutions, were apparently not considered or ignored.



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