Bank run happens when the customers rush to the bank for their money. Though regulators and governments are always cautious on this to keep the financial stability and assure people on safety of deposit via deposit insurance, bailouts, reserve requirements, among others. Despite of that, banks failure happens now and then and the scenario of bank money run such as recent Silicon Valley banks of 2023 can emerge at any time in any country in future. So, the critical question comes in can and why banks run out of the cash?
Please review the attached video https://youtu.be/qW2mvBajsNQ
and select any one of the options below which is related to bank runs to explain your answer . For your reference: https://youtu.be/87YaO-F-xxA
A. Deposit insurance gives guarantee that depositors will get their money back. The deposit insurance scheme cannot stop the bank runs; rather, it is the weaknesses in regulatory governance and the recklessness of the bank’s management that lead to the bank’s troubles and the bank runs.
B. Monetary policy could be linked to bank run. Such as recently, central banks increase interest rates to control inflation. During covid, many banks turn to safe haven assets such treasury bill. Interest rate hike actually affected negatively those banks’ holding fixed income securities. This raised insolvency risks for banks with weaker capital. Ultimately, bank runs may occur when depositors withdraw their money. So, monetary policymakers could guide banks holding too much fixed income securities in time of contractionary monetary policy.
