4 ms·

The best way to prevent a bank run is not to run. A stampede isn't caused by the movement of a lone animal, but by the herd. It's a classic feedback loop.

quesera 4y ago
> The best way to prevent a bank run is not to run No, the only way to prevent a bank run is to get everyone else not to run. And since that's impossible, there's only one rational choice to make, which is to be first out the door. This is bad! But it's true.
- deleted 4y ago
  [deleted]
- NineStarPoint 4y ago
  Metaphorically you should aim to be the second out the door really. It’s the first person out the door who starts the run, and starting the run is rarely rational. Once the run has begun, yeah you should aim to be out the door fast. Unfortunately it’s very rare to have the knowledge and/or connections necessary to guarantee that you can not instigate a run, but still withdraw before the collapse.
viraptor 4y ago
That's not a way to prevent the bank run. That's just choosing to not be a part of it. Unless you can both coordinate with and convince others to do the same, you're not preventing anything.
- rexreed 4y ago
  It sure seems that of all the people who could coordinate and convince others not to run, this list of investors with several thousand overall portcos would be just the right people. A moment of stability at a time of crisis would sure be better than a run for the doors NOW approach that set off the stampede. Imagine the ALL-CAPS tweets and backdoor phone calls that could have been possible if these very same investors (who now rally behind the shuttered and reopened bank) could have called for calmness instead of panic. But that's not what happened. Once the run starts, you can't stop it.
nl 4y ago
There was a balance sheet crisis at the bank. It's pretty easy to see how that could quickly develop into a situation where withdrawls were limited. > The best way to prevent a bank run is not to run. That is irrational for every individual actor. There is very little downside in withdrawing the money and huge downside in not doing so. The best (and only?) way to really prevent a bank run is for an actor that everyone trusts to aggressively step in and provide guarantees. See for example the situation at Credit Swisse where the Swiss National Bank had to step in on March 16 to provide $54B in loans: https://www.aljazeera.com/economy/2023/3/15/credit-suisse-slump-renews-fears-for-global-banking-crisis https://www.aljazeera.com/economy/2023/3/15/credit-suisse-sl...
peeters 4y ago
Curious analogy, given what would happen to someone caught in a stampede who tries to stop it by standing their ground.

quesera 4y ago

> The best way to prevent a bank run is not to run No, the only way to prevent a bank run is to get everyone else not to run. And since that's impossible, there's only one rational choice to make, which is to be first out the door. This is bad! But it's true.

deleted 4y ago
[deleted]
NineStarPoint 4y ago
Metaphorically you should aim to be the second out the door really. It’s the first person out the door who starts the run, and starting the run is rarely rational. Once the run has begun, yeah you should aim to be out the door fast. Unfortunately it’s very rare to have the knowledge and/or connections necessary to guarantee that you can not instigate a run, but still withdraw before the collapse.

viraptor 4y ago

That's not a way to prevent the bank run. That's just choosing to not be a part of it. Unless you can both coordinate with and convince others to do the same, you're not preventing anything.

rexreed 4y ago
It sure seems that of all the people who could coordinate and convince others not to run, this list of investors with several thousand overall portcos would be just the right people. A moment of stability at a time of crisis would sure be better than a run for the doors NOW approach that set off the stampede. Imagine the ALL-CAPS tweets and backdoor phone calls that could have been possible if these very same investors (who now rally behind the shuttered and reopened bank) could have called for calmness instead of panic. But that's not what happened. Once the run starts, you can't stop it.

nl 4y ago

There was a balance sheet crisis at the bank. It's pretty easy to see how that could quickly develop into a situation where withdrawls were limited. > The best way to prevent a bank run is not to run. That is irrational for every individual actor. There is very little downside in withdrawing the money and huge downside in not doing so. The best (and only?) way to really prevent a bank run is for an actor that everyone trusts to aggressively step in and provide guarantees. See for example the situation at Credit Swisse where the Swiss National Bank had to step in on March 16 to provide $54B in loans: https://www.aljazeera.com/economy/2023/3/15/credit-suisse-slump-renews-fears-for-global-banking-crisis https://www.aljazeera.com/economy/2023/3/15/credit-suisse-sl...

peeters 4y ago

Curious analogy, given what would happen to someone caught in a stampede who tries to stop it by standing their ground.