Financial Crises, Bank Runs and Failures

Finance fails in a small number of ways, and it fails in them over and over. A firm borrows short and lends long. It borrows a lot against a thin layer of equity. It holds assets whose value nobody outside can easily check. And its funding comes from people who will all leave at once if they start to doubt it. When enough doubt arrives, a run turns paper losses into real ones and a solvent-looking firm into a failed one. This happened to the trust companies of New York in 1907 and to around 9,000 American banks between 1930 and 1933. It happened to the savings and loans in the 1980s, to Long-Term Capital Management in 1998 and to Northern Rock, Bear Stearns, Lehman Brothers, AIG and Washington Mutual in 2007–08. In March 2023 it happened to Silicon Valley Bank, Signature Bank, First Republic and Credit Suisse in a few weeks. Each crisis left behind a new institution or rule: the Federal Reserve after 1907, deposit insurance after 1933, the Basel Committee after Herstatt, and Dodd-Frank, bail-in and resolution planning after 2008. Each crisis also exposed a new channel the old rules had missed. This section explains how runs work, walks through the major crises from 1866 to 2026, sets out the recurring mechanics and the tools governments use to stop panics and resolve failed firms, and explains how an experienced risk manager, supervisor or investor reads the early signs.