Bank runs and remedies
Most banks operate on the premise of maturity transformation, where short term deposits from clients are used as long term loans or investments. Inherently, the duration of liabilities (deposits) and assets (investments) is mismatched, and in times of large liquidity crunches exhibited through outlier withdrawal events banks do not have enough cash on hand to satisfy their immediate liabilities. In such cases banks either seek emergency funding, government bailouts or proceed to a fire sale o...
Bank runs and remedies
Most banks operate on the premise of maturity transformation, where short term deposits from clients are used as long term loans or investments. Inherently, the duration of liabilities (deposits) and assets (investments) is mismatched, and in times of large liquidity crunches exhibited through outlier withdrawal events banks do not have enough cash on hand to satisfy their immediate liabilities. In such cases banks either seek emergency funding, government bailouts or proceed to a fire sale o...
