Until recently, the only bank run many had ever experienced was in the movie “It’s a Wonderful Life.” But when the depositors of Silicon Valley Bank withdrew $42 billion in a single day—the largest bank run in U.S. history –the modern world discovered that even a regional bank default can tip the whole financial system onto the brink of a crisis.
Qi Chen and Rahul Vashishtha, professors of accounting at Duke University’s Fuqua School of Business, have long studied the role information plays in panic-induced bank runs. From their research, they argue that the fragility of the U.S. banking system is a feature inherent to a bank’s business model, and some transparency rules can increase the chance of panic-based deposit withdrawals (bank runs).
[This article has been reproduced with permission from Duke University's Fuqua School of Business. This piece originally appeared on Duke Fuqua Insights]