Researchers at the Federal Reserve Bank of New York said Tuesday that poor bank fundamentals, rather than bank runs alone, are the key factor behind banking crises, based on a new study examining more than 3,000 U.S. bank runs between 1863 and 1934.
A bank run occurs when large numbers of depositors withdraw their money simultaneously because they fear a bank could fail.
While bank runs have long been viewed as a trigger for financial crises, the researchers said their findings suggest they become economically damaging mainly when banks are already financially weak.
AI Unlocks New Historical Database The study, published on the New York Fed's Liberty Street Economics blog, used large language models (LLMs) to analyze millions of digitized historical newspaper articles, creating what the researchers described as the most comprehensive database of U.S. bank runs to date.
The researchers found that weak banks were considerably more likely to experience runs than healthier institutions.
