Have you ever wondered why a simple rumor can bankrupt a financial institution? In this episode, we explore the terrifying mechanics of the bank run, a phenomenon where a bank’s insolvency becomes a self-fulfilling prophecy simply because depositors believe it will fail. We break down the economic theory behind these panics, specifically the Diamond–Dybvig model, which illustrates why it is actually rational for you to withdraw your money if you suspect others are doing the same.

Join us as we discuss:

• The Flaw in the System: How fractional-reserve banking creates an inherent "asset–liability mismatch," where banks hold long-term loans (like mortgages) but owe depositors cash on demand, meaning no bank can ever pay everyone at once.
• Historical Cat ...