Bank Runs Not Caused by Panic, But Institutional Health

A new study by the New York Fed reveals that bank runs are not caused by panic, but rather by the underlying health of financial institutions. The researchers analyzed over 3,000 US bank runs between 1863 and 1934, a period before federal deposit insurance existed.

The findings show that while minor shocks can trigger bank runs at both financially weak and robust institutions, it's the ones with poor fundamentals that actually fail. This means that even in an environment without safety nets, the fundamental health of institutions is the primary factor determining whether a bank run leads to failure and broader economic damage.

The implications for modern banking and finance are significant, especially considering the crypto industry's own history of bank runs. The study supports regulatory frameworks that prioritize transparency and proof of reserves, which aligns with the industry's push toward proof-of-reserves standards and on-chain transparency.