Solvency, Not Runs, Drives Most Bank Failures

A long-run study across 160 years of U.S. banking shows insolvency is usually the root cause of bank failures, with runs acting mainly as triggers for already insolvent banks. Deposit insurance reduced runs but did not eliminate failures, so policy should emphasize higher bank capital, stronger supervision, and selective liquidity support to panicking banks. Strong banks survive runs via interbank lending, signalings of confidence, and temporary suspension of convertibility. In short, mitigating solvency problems and recapitalizing when needed are key to preventing costly crises.