Bank Runs With and Without Bank Failure

2026-01-28

AI Summary

This study investigates the causes of bank runs and the mechanisms through which they may lead to bank failures, disentangling the roles of bank fundamentals and external shocks. Leveraging historical U.S. newspaper data from 1863 to 1934, the authors construct—using natural language processing—the first systematic database of 4,049 bank run events, which they analyze through text mining and empirical econometric methods. The findings reveal that while runs predominantly affect weak banks, even fundamentally sound institutions can be exposed to contagion. Crucially, only banks with poor fundamentals fail as a result of runs, and bank failures—regardless of whether accompanied by runs—significantly exacerbate local contractions in deposits and lending. These results challenge the conventional view that runs inevitably cause failure, demonstrating instead that well-capitalized banks can effectively withstand runs through multiple resilience mechanisms.

Technology Category

• Natural Language Processing: Safety and Robustness
• Reasoning under Uncertainty: Causality
• Game Theory and Economic Paradigms: Imperfect Information

Application Category

• Social Networks and Social Media: Social media analysis through the lenses of networks
• Web Mining and Content Analysis: Robustness and generalizability of Web mining methods
• Economics, Online Markets and Human Computation: Sustainability of Web economics

Abstract

We study the causes and consequences of bank runs using a novel dataset on bank runs in the United States from 1863 to 1934. Applying natural language processing to historical newspapers, we identify 4,049 runs on individual banks. Runs are considerably more likely in weak banks but also occur in strong banks, especially in response to negative news about the real economy or the broader banking system. However, runs typically only result in failure for banks with weak fundamentals. Strong banks survive runs through various mechanisms, including interbank cooperation, equity injections, public signals of strength, and suspension of convertibility. At the local level, bank failures (with and without runs) translate into substantially larger declines in deposits and lending than runs without failures. Our findings suggest that poor bank fundamentals are necessary for bank runs to translate into failure and for bank distress to generate severe economic consequences.

Problem

• bank runs
• bank failure
• bank fundamentals
• financial distress
• economic consequences

Innovation

• natural language processing
• bank runs
• historical newspapers
• bank failure
• financial stability