# Bank Run **The model:** The self-fulfilling collapse of a solvent-but-illiquid bank: because banks lend out deposits, no bank can pay all depositors at once — so the *belief* that others will withdraw makes withdrawing rational, and the panic manufactures the failure it fears. Diamond and Dybvig (1983) formalized it: banking's maturity transformation creates two equilibria, normal operation and run, and pure expectation selects between them. ## The Mechanism The run is a coordination game, not a solvency verdict: each depositor's payoff depends on what others do, first-movers are paid in full and laggards lose, so speed beats accuracy and rumor beats audit. Every remedy attacks the expectation layer — deposit insurance (FDIC, 1933) removes the reason to race; lender-of-last-resort liquidity (the [[Federal Reserve]] discount window) breaks the illiquidity-insolvency confusion; suspension halts the clock. The model generalizes to anything funded short and invested long: repo markets (2008 was a wholesale run), money-market funds, stablecoins, and — crucially — *institutions of trust*, which fail run-style when everyone rushes to stop relying on them at once. ## KB Applications ### The smartphone-speed run [[Silicon Valley Bank]] (2023) ran at unprecedented velocity — $42B in a day, panic propagating through founder group-chats — updating the model for the social-media era and exposing the uninsured-deposit concentration the vault's [[2008 Financial Crisis]] and post-Dodd-Frank files track. The 2025–26 deregulatory swing (supervision retreats, [[Volcker Rule]] softening, threshold rollbacks) re-loads the two-equilibrium gun. ### Runs on institutions Currency crises, debt-ceiling brinksmanship, and even compliance-in-advance under authoritarian pressure share the run structure: confidence is the collateral, and first-defector advantage shreds it. The Bend the Knee cascade is a run on institutional courage. ## See Also - [[Tipping Point]] — the threshold dynamics - [[Moral Hazard (Term)]] — what the safety net creates - [[SIFI]] — the too-big-to-run designation