Author: Byron Gilliam, blockworks

Translator: Shenchao TechFlow

Introduction by Shenchao: Bitcoin supporters often regard fractional reserve banks as Ponzi schemes, claiming that when a run occurs, even good banks would collapse. However, a new study has sorted through numerous bank run events and found that most runs fizzle out before they threaten the banks. This is a rebuttal that investors who view bank vulnerability as part of the crypto narrative must confront.

“You are completely mistaken, as if I were keeping money in a safe.” (George Bailey on fractional reserve banking)

The basic promise of banking is that everyone can withdraw their money whenever they want, as long as they do not all try to take it out at the same time.

This is what George Bailey taught us.

“You are completely mistaken, as if I locked the money in a safe,” he told the customers of Bailey Brothers Building & Loan during the run. “The money is not here. Your money is in Joe's house, right next door. It’s also at the Kennedy's, Mrs. Macklin's house, and hundreds of other homes.”

“You lent them money to build houses, and they will do their best to pay you back,” he explained.

Anxious customers were not immediately reassured. George had to pull out his own $2,000 to withstand the run. Even so, the bank was only truly saved at the end of the movie: friends and customers donated enough money to fill the $8,000 hole on the bank's balance sheet.

Austrian School economist Murray Rothbard would say that it was better for Bailey Bros. to collapse. “The fractional reserve banking system is a scam, a Ponzi scheme, fraud,” he once wrote.

He believed that banks could carry out this fraud because bankers like George Bailey distorted how much lending they could actually do.

“Because people are so accustomed to thinking of banks as just taking our deposits and lending them out,” Rothbard explained in a speech, “it is hard to shift the mindset to realize that banks are actually engaged in a form of legalized counterfeiting.”

In other words, if people truly understood how fractional reserve banks operate, creating money “out of thin air,” everyone would demand their money back at the same time. Even the best banks would fail.

This pessimistic view of banks seems to have academic support. Economists Douglas Diamond and Philip Dybvig wrote a classic study on the fragility of fractional reserve banking: “Bank Runs, Deposit Insurance, and Liquidity.”

This research formalized Rothbard’s intuition: banks that finance long-term loans with demand deposits—even with healthy assets—risk being brought down by a run.

Thus, the fear of bank failure can become self-fulfilling: “During a run, depositors rush to withdraw their deposits because they expect the bank to fail,” the authors explained. “In fact, sudden withdrawals can force a bank to sell many assets at a loss, leading to eventual failure.”

“This is not necessarily related to the bank's fundamental condition,” they added. Instead, “anything that causes [depositors] to expect a run will trigger a run.”

“Even ‘healthy’ banks can fail.”

Diamond and Dybvig reached this troubling conclusion primarily using theoretical models based on mathematics and game theory.

A new study indicates that this model does not reflect reality.

Each banking run event, pulled from newspaper reports by a large language model, has been recorded on a website that details why runs started and how they were resolved.

The surprising finding is that most runs fizzle out before they threaten the bank. The authors found: “There are more runs that do not lead to bank failures than those that do.”

This contradicts the expectations of the Diamond-Dybvig self-fulfilling model.

Even among banks with “very weak” fundamentals, only 59% failed after experiencing a run.

I suspect Rothbard would expect that number to be 100%.

Meanwhile, the banks with the strongest fundamentals “rarely fail,” even when faced with runs.

What do the authors conclude? “This pattern casts doubt on a strong view: that liquidity problems alone can trigger serious financial distress.”

I think this politely suggests that Diamond, Dybvig, Rothbard, goldbugs, and Bitcoin believers are wrong about fractional reserve banking.

Cases Piled High

Diamond and Dybvig at least got one thing right: “The bank runs in our model are triggered by shifts in expectations,” they noted, “and expectations can depend on just about anything.”

I randomly browsed through the bank run database and found several excellent examples.

In 1910, the Merchants National Bank in Los Angeles experienced a run triggered by boxer Jim Jeffries visiting the bank, attracting a crowd of boxing fans. A newspaper reported: “Dozens of depositors thought something was wrong and started to withdraw their deposits. It wasn't until the fighter left that the frightened customers felt at ease.”

It turns out Jeffries was just there to open an account and deposit part of his championship winnings.

In 1924, a run occurred at the Metals Bank & Trust Company in Butte, Montana, sparked by someone hearing a joke bet that the bank would not open the next day. Newspaper reports noted that the bank continued operating for four hours after normal closing time to accommodate withdrawals, “stopping payments to depositors only when it was no longer safe after dark.”

The joke was that the bank would indeed close the following day for Lincoln's birthday.

In 1929, the Bay Ridge Savings Bank in Brooklyn, New York experienced a run prompted by rumors of the president's death. Fortunately, the newspaper reported that the bank “was alerted to this false rumor in advance” and had time to prepare $14 million in cash to meet withdrawals.

The truth was that the president had gone to Connecticut to have a boil removed from his neck. (He survived the surgery.)

Once again, this is just a random sampling from the database.

But these peaceful resolutions of runs seem to contradict the strongest interpretation of the Diamond-Dybvig theory: it turns out that bank runs rarely self-fulfill.

However, they sometimes do occur.

In 1930, the Independence State Bank in Chicago faced a run caused by a fight outside the two doors. Newspaper reports indicated, “Police patrol cars were dispatched to the bank after receiving an alarm from the restaurant, sparking rumors that the bank was being run on.” Somehow, over $1.6 million was withdrawn from the bank's $5.6 million in deposits, which surely depleted the bank's liquid assets, prompting state officials to feel they had to close it.

The Bank Runs website does not specify whether Independence Bank had a fundamentally sound balance sheet. However, the authors' research indicates that if it was indeed sound, the bank would almost certainly have survived.

In many cases, surviving a run only requires a public show of cash.

For instance, a run in 1907 was halted by “displaying large amounts of cash and coins at the counter for depositors to see.”

In 1857, a “non-profitable run” at a bank in Alabama was stopped because depositors saw a large stack of “a mound of gold Malakov and a mound of silver Redan” on the cashier's desk. (Malakov and Redan were famous Russian fortresses.)

In 1924, a manager at a bank in Brooklyn stopped a run by stacking bills with denominations up to $1,000 in the bank's front window, “casually piling them up for everyone to see.”

Do bank customers understand that no matter how high the cash pile is, if everyone wants to withdraw money at the same time, there won’t be enough to pay everyone?

I guess they do.

(Byron Gilliam)

免责声明：本文章仅代表作者个人观点，不代表本平台的立场和观点。本文章仅供信息分享，不构成对任何人的任何投资建议。用户与作者之间的任何争议，与本平台无关。如网页中刊载的文章或图片涉及侵权，请提供相关的权利证明和身份证明发送邮件到support@aicoin.com，本平台相关工作人员将会进行核查。