AN AGE OF BANK RUNS?

AN AGE OF BANK RUNS? Tyler Cowen at the Marginal Revolution economics site has a post on an article he wrote in the New York Times. He begins by saying that he asked some colleagues: “to identify the single most important development to emerge from America’s financial crisis. Most of us had a common answer: The age of the bank run has returned.” In my lifetime, it was thought that runs on commercial banks would not happen because of Federal Deposit Insurance. Now, there have been runs on nonbank financial institutions (Lehman). The common thread in runs is the urgency of getting your money out first. The risks are compounded because you can’t know whether an institution will be brought down by another institution’s failure. The MF Global failure makes it seem all the more urgent to get your money out early. It’s been 5 months since MF Global failed, and they still don’t know where the customer money went. Cowen says: “It now seems that the 21st century will resemble the 19th and early 20th centuries, with periodic panics and runs on financial institutions….”