10.20.2008


FEATURED TOPIC

Bank Runs

George G. Kaufman
A run on a bank occurs when a large number of depositors, fearing that their bank will be unable to repay their deposits in full and on time, simultaneously try to withdraw their funds immediately. This may create a problem because banks keep only a small fraction of deposits on hand in cash; they lend out the majority of deposits to borrowers or use the funds to purchase other interest-bearing assets such as government securities. When a run comes, a bank must quickly increase its cash to meet depositors' demands. It does so primarily by selling assets, often hastily and at fire-sale prices. As banks hold little capital and are highly leveraged, losses on these sales can drive a bank into insolvency. MORE
ALSO OF INTEREST

International Trade

by Arnold Kling [Nobel Prize winner Paul Krugman's contributions explained.]

Stock Market

by Jeremy J. Siegel

Savings and Loan Crisis

by Bert Ely

Federal Reserve System

by Richard H. Timberlake

Deposit Insurance

by George G. Kaufman