From Sergio Correia, Stephan Luck, and Emil Verner:
Why do banks fail? We created a panel that includes many commercial banks from 1865 to 2023 to study the history of bank failures in the United States. Bank failures are characterized by increased asset losses, credit defaults, and increased reliance on non-recourse financing. Common to all failing banks is that failure is largely predicted using simple accounting metrics from publicly available financial statements. Predictability is high even in the absence of deposit insurance, when depositor runs were normal. Bank-level fundamentals also predict the total frequency of bank failures during banking crises. Overall, our evidence suggests that the main cause of bank failures and banking crises is almost always and everywhere the deterioration of banking fundamentals. Bank runs can be dismissed as a plausible cause of failure in most of the failures in US history and are often the result of near-failures. Depositors are often slow to react to the increased risk of bank failure, even in the absence of deposit insurance.
Bank run theory: limited.
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