Why a healthy bank can still collapse: Diamond and Dybvig's bank run
30seconds
A bank keeps only a slice of your deposit as cash and lends the rest for years, so it quietly bets that almost nobody asks for their money at once. Diamond and Dybvig's 1983 model shows the catch: the same bank has two stable outcomes, a calm one and a run, and the only difference is what depositors expect of each other.
Start a run yourself with 100 depositors, tune the cash reserve and the fire-sale loss, then switch on deposit insurance and watch the panic never begin.
Deep dive · 4 min
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