Bank Runs (plus Jonathan Clements on "My Money Journey") (EP.247)

<p class="p1">There’s been a lot of interest in the topic of bank runs lately, and in today’s episode, we take a look at the most relevant research to help us better understand why they happen and how they can be avoided. Our conversation unpacks the 2022 Nobel prize-winning work of Douglas Diamond and Philip Dybvig and examines the three primary risks that banks need to navigate to avoid a bank run related crisis. We discuss the immense value that banks provide and how they keep the economy moving, before reflecting on how their most valuable services are inexorably tied to the risk of bank runs. You’ll also learn about the role of the media in triggering a bank run, and how the problems that arise with bank runs can be addressed through a combination of deposit insurance, bank regulation, and a diverse customer base — all of which are designed to keep depositors from panicking simultaneously. We also revisit a past conversation with Jonathan Clements, before catching up with him in real time to discuss his new book <em>My Money Journey: How 30 People Found Financial Freedom - and You Can Too</em>. Tune in for an in-depth look at bank runs, the value of writing your money story, and a timely reminder that when you’re making a deposit, you’re actually lending money to the bank.</p> <p class="p1"> </p> <p class="p1"><strong>Key Points From This Episode:</strong></p> <p class="p1"> </p> <p class="p1">•    An introduction to the topic of bank runs including an overview of the Nobel prize-winning work done on the subject in 2022. <strong>(0:02:12)</strong></p> <p class="p1">•    The three primary risks you need to manage as a bank in order to be a successful business. <strong>(0:07:28)</strong></p> <p class="p1">•    Why liquidity, illiquidity, and duration risk can pose a problem, even for healthy banks. <strong>(0:12:47)</strong></p> <p class="p1">•    How news stories can create unwarranted panic and cause a bank run, even if a bank isn’t experiencing problems. <strong>(0:16:02)</strong></p> <p class="p1">•    The