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Why Banks Fail

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Why do banks fail? One popular view emphasizes the role of bank runs, when a bank's customers collectively withdraw their money on the belief that the bank will soon fail. Bank runs, according to this view, can cause otherwise healthy banks to fail — the panic itself creates a self-fulfilling prophecy. This is often cited as an important cause of bank failures during the Great Depression, the 2008 financial crisis, and the 2023 U.S. banking crisis. A recent paper, however, casts serious doubt on this narrative.

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  • Moxie Clifford, 2025. "Why Banks Fail," Econ Focus, Federal Reserve Bank of Richmond, vol. 25(4Q), pages 1-29, December.
    • Handle: RePEc:fip:fedrrf:102224
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    File URL: https://www.richmondfed.org/-/media/RichmondFedOrg/publications/research/econ_focus/2025/q4/research_spotlight.pdf
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