Bank runs and resolutions

The collapse of Silicon Valley Bank and the swift intervention by the US authorities hold lessons for India - to complete the unfinished policy agenda on handling failed financial firms

The collapse of the Silicon Valley Bank (SVB) and a few other banks has once again drawn attention to the need for better methods and institutions in financial economic policy.

Banks have suffered from runs right from the earliest times. Our thorough understanding of bank runs comes from Douglas W Diamond and Philip H Dybvig, who in 1983 obtained deep insights into the fundamental paradox of banking and won the 2022 Nobel Prize for this work. Banks are repositories for consumers’ cash. The cash in turn is put to use by banks. However, banks make investments with that cash and