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Information about #fdic #insurance and communication about #bank #stability by the #federalreserve can reassure depositors and mitigate #bankruns, while communication from political leaders only influences their electoral base.
In March 2023, rapid #bankruns led to the failures of #siliconvalleybank, Signature Bank, and First Republic Bank. Uninsured depositors lost confidence due to higher interest rates and their investment model. Other banks are also experiencing deposit outflows. A book by #nyustern faculty and others analyzes the situation, offering a diagnosis and policy proposals for #financialresilience, emphasizing adaptable and robust #banking policies amidst changing #risks.
"#banks take costly actions (such as higher #capitalization, #liquidity holding, and advanced #riskmanagement) to avoid financial distress and #bankruns ... We show that #prudential #regulations have an informational impact: sufficiently tight regulations can eliminate inefficient separating equilibria in banks’ signaling game, thereby changing the information available to creditors and their incentives to run."