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Policy Forum

Run, Run, Run: Was the Financial Crisis Panic over Bank Runs Justified?

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Date and Time
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Location
Hayek Auditorium
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Featuring
Featuring Vern McKinley, Research Fellow, Independent Institute; Louise Bennetts, Associate Director of Financial Regulation Studies; moderated by Mark Calabria, Director, Financial Regulation Studies, Cato Institute.

Financial history is characterized by a consistent fear of bank runs, especially during times of crisis. The financial crisis of 2007-09 was no exception. The Financial Crisis Inquiry Commission identified no less than 10 cases of runs. Those runs were a major consideration in the shifting policy responses that authorities employed during the crisis. In the early stages, troubled institutions facing runs were dealt with through a scattered blend of voluntary mergers, outright closures, and bailouts. By late 2008 and thereafter, panic had descended on the major financial agencies. That resulted in the decision to backstop the full range of large institutions, as government officials feared a collapse of the entire financial system. However, serious analysis of the risks facing the financial sector was sorely lacking. In a recent Cato Policy Analysis, Vern McKinley provides such an analysis, asking whether many of the crisis decisions were appropriate.