Explanation: A bank run is fundamentally defined as a situation where a significant number of depositors simultaneously withdraw their funds, driven by concerns regarding the bank's potential insolvency. This phenomenon is particularly critical within fractional-reserve banking systems due to the limited cash reserves banks maintain.

Explanation: A bank run can indeed worsen a bank's financial condition. The process of meeting withdrawal demands depletes a bank's liquidity, potentially transforming an initial solvency concern into an actual state of bankruptcy.

Explanation: When a bank is compelled to liquidate its assets rapidly during a run, it often must sell them at distressed prices, incurring significant losses. This forced asset sales can also disrupt the functioning of businesses that depend on the bank's loans or investments, potentially causing wider economic repercussions.

Explanation: A bank run is fundamentally defined as a situation where a significant number of depositors simultaneously withdraw their funds, driven by concerns regarding the bank's potential insolvency. This phenomenon is particularly critical within fractional-reserve banking systems due to the limited cash reserves banks maintain.

Explanation: A bank run is often precipitated by the fear or reality of a bank's insolvency. The act of running on the bank itself depletes its liquidity, thereby increasing the probability of default and potentially transforming a solvency concern into actual bankruptcy.

Explanation: When a bank liquidates assets rapidly during a run, it often does so at significantly reduced prices. This forced selling can depress asset values, disrupt businesses that rely on those assets or related credit, and potentially lead to a cascade of bankruptcies, negatively impacting the broader economy.

Explanation: Fractional-reserve banking systems are not inherently immune to bank runs. In fact, by lending out the majority of deposited funds and retaining only a fraction as reserves, banks become vulnerable. This structure means they may lack sufficient liquid cash to satisfy all withdrawal demands during a period of mass withdrawals.

Explanation: During the Great Depression, single-branch banking laws in the U.S. did not stabilize the banking system; rather, they contributed to its fragility. States with such laws often experienced more frequent and severe bank runs compared to those with more diversified, multi-branch banking structures.

Explanation: The fundamental vulnerability of fractional-reserve banking stems from the inherent mismatch between its liabilities, which are typically short-term and demandable (deposits), and its assets, which are often long-term and illiquid (loans). This structural issue creates liquidity risk, making banks susceptible to runs.

Explanation: The law of large numbers assists banks in predicting aggregate withdrawal behavior by assuming that individual depositors' needs for cash are largely uncorrelated. This statistical principle allows for predictable averages across a large customer base, rather than assuming high correlation.

Explanation: Fractional-reserve banking contributes to the risk of bank runs because banks lend out the majority of deposited funds, retaining only a fraction as reserves. This means a bank may not possess sufficient liquid cash to meet all withdrawal demands if a substantial number of depositors seek to withdraw their funds simultaneously.

Explanation: The asset-liability mismatch refers to the discrepancy in maturity dates between a bank's assets (e.g., long-term loans) and its liabilities (e.g., short-term demand deposits). This mismatch creates liquidity risk, as banks may not be able to convert assets into cash quickly enough to meet sudden, large withdrawal demands.

Explanation: The law of large numbers enables banks to predict aggregate withdrawal behavior by assuming that individual depositors' needs for cash are largely uncorrelated. This statistical principle allows banks to anticipate average withdrawal patterns across their customer base, facilitating efficient reserve management.

Explanation: The phenomenon of a bank run is a classic example of a self-fulfilling prophecy. Initial fears or rumors of a bank's potential failure can prompt depositors to withdraw funds, thereby depleting the bank's reserves and increasing the likelihood of actual insolvency, thus fulfilling the prophecy.

Explanation: The Diamond-Dybvig model posits that bank runs can be rational outcomes, not solely driven by panic irrespective of a bank's health. The model illustrates how bank runs can arise from multiple Nash equilibria, where it may be individually rational for a depositor to withdraw funds if they anticipate others doing so, thereby precipitating the bank's failure.

Explanation: Within the Diamond-Dybvig model, banks primarily generate profits not from deposit fees, but from the interest rate spread. They earn revenue by charging borrowers a higher interest rate on loans than they pay to depositors on their accounts.

Explanation: Robert K. Merton, the sociologist who conceptualized the 'self-fulfilling prophecy,' explicitly identified bank runs as a prime illustration of this principle. He argued that a false belief can lead to actions that make the belief come true.

Explanation: A bank run functions as a self-fulfilling prophecy because as depositors withdraw funds, the bank's available cash decreases. This reduction in liquidity heightens the perceived risk of default, which in turn encourages further withdrawals, creating a reinforcing cycle that can lead to the bank's failure.

Explanation: Within the Diamond-Dybvig model, banks primarily generate profits through the interest rate spread. They earn revenue by lending funds at a higher interest rate than the rate paid on customer deposits, thereby covering operational costs and generating earnings.

Explanation: A banking panic is distinct from an individual bank run. While a bank run involves withdrawals from a single institution, a banking panic signifies a broader crisis where numerous banks experience runs concurrently, often leading to widespread loss of confidence in the entire financial system.

Explanation: A systemic banking crisis represents the most severe form of banking instability, marked by the near-total loss of a nation's banking capital. Such events can precipitate profound and prolonged economic downturns.

Explanation: Contrary to the statement, Ben Bernanke's analysis posits that bank runs played a significant, rather than minor, role in exacerbating the severity of the Great Depression. He argued that these widespread withdrawals contributed substantially to the economic contraction.

Explanation: Empirical evidence suggests that significant systemic banking crises are associated with substantial economic repercussions, with average economic output losses estimated to be approximately 20% of GDP for crises occurring between 1970 and 2007.

Explanation: Historical accounts identify events such as the Dutch tulip manias (1634-1637) and the British South Sea Bubble (1717-1719) as early precursors or related phenomena to modern financial instability and the potential for bank runs, involving speculative manias and credit cycles.

Explanation: Historical records indicate that in 1832, political reformers employed the threat of a bank run, encapsulated by the slogan 'Stop the Duke, go for gold!', to exert pressure on the government, led by the Duke of Wellington, to enact the Reform Act.

Explanation: The banking panics of November 1930 commenced in the Southern United States, specifically triggered by the failure of banks in Tennessee and Kentucky, not New York and California. These initial failures cascaded through correspondent banking networks.

Explanation: Canada did not experience widespread bank runs during the Great Depression, a stark contrast to the situation in the United States. This divergence is often attributed to differences in regulatory frameworks and banking structures between the two nations.

Explanation: A systemic banking crisis represents the most severe form of banking instability. It is characterized by the widespread collapse of the banking sector, far exceeding the scope and impact of individual bank runs or even broader banking panics.

Explanation: Bank runs have been a recurring and impactful theme in various fictional works. The film 'It's a Wonderful Life' (1946) is a notable example, alongside others like 'American Madness' (1932), which have used bank runs to explore societal anxieties and financial fragility.

Explanation: The 'Kipper und Wipper' phenomenon, occurring in the early 17th century within the Holy Roman Empire, was indeed characterized by extensive debasement of currency and speculative excesses, leading to significant economic disruption and financial instability.

Explanation: The 'Encilhamento' in Brazil, spanning from 1890 to 1893, was precisely the opposite of stable financial growth; it was a period marked by rampant stock market speculation and excessive credit expansion, culminating in a severe financial crash and widespread bankruptcies.

Explanation: The illustration of the Montreal City and District Savings Bank in 1872 visually captures a bank run scenario, showing the bank's mayor attempting to address a large gathering of depositors who were seeking to withdraw their funds.

Explanation: The 'Great Bullion Famine,' occurring roughly between 1400 and 1500, was characterized by a scarcity, not an excess, of precious metals like gold and silver, which had significant implications for the monetary systems of the era.

Explanation: The primary distinction lies in scope: a bank run pertains to withdrawals from a single financial institution. In contrast, a banking panic, or bank panic, is a systemic event where multiple banks simultaneously face runs, reflecting a broader crisis of confidence in the financial system.

Explanation: Ben Bernanke's research posits that bank runs played a crucial role in amplifying the Great Depression. He argued that the widespread destruction of banking capital resulting from these runs was a primary driver of the severe economic contraction experienced during that period.

Explanation: Analysis of systemic banking crises occurring between 1970 and 2007 indicates substantial economic consequences. The average estimated loss in economic output during these crises was approximately 20% of a nation's Gross Domestic Product (GDP).

Explanation: The Dutch tulip manias, a period of intense speculative activity in the 17th century, are frequently cited as an early historical example of financial instability and speculative manias that foreshadowed later crises.

Explanation: The film 'It's a Wonderful Life' (1946) is a well-known fictional depiction that prominently features a bank run, illustrating the panic and potential consequences associated with such events within a narrative context.

Explanation: The 'Kipper und Wipper' phenomenon refers to a significant financial crisis that occurred in the Holy Roman Empire between 1621 and 1623. It was characterized by widespread debasement of coinage and speculative bubbles, leading to considerable economic instability.

Explanation: Banks facing a run are not entirely passive. They can employ various mechanisms to combat it, such as seeking emergency liquidity from other institutions or the central bank, imposing withdrawal limits, or, in extreme cases, temporarily suspending convertibility.

Explanation: Banks strategically encourage term deposits (which have fixed maturity dates and withdrawal penalties) over demand deposits (which are immediately accessible). This shift helps stabilize funding sources and reduces the immediate liquidity pressure that can trigger bank runs.

Explanation: While deposit insurance significantly reduces the incentive for depositors to withdraw funds due to fear of loss, it does not completely eliminate it. Concerns about immediate access to funds during a crisis or during the reorganization process can still prompt withdrawals.

Explanation: Central banks, acting as lenders of last resort, typically provide short-term liquidity to solvent but illiquid institutions. They do not generally provide long-term loans to banks experiencing fundamental solvency problems, as this would entail taking on excessive risk.

Explanation: A system of full-reserve banking, where banks are required to hold 100% of customer deposits in reserve and refrain from lending them out, would theoretically eliminate the risk of bank runs. This is because banks would always possess sufficient liquid assets to meet all depositor withdrawal demands.

Explanation: Capital requirements, exemplified by Basel III regulations, are designed to strengthen banks' resilience by mandating that they hold *more* capital relative to their assets. This increases their capacity to absorb losses and reduces the likelihood of insolvency, thereby mitigating the risk of bank runs.

Explanation: Walter Bagehot's seminal work, 'Lombard Street: A Description of the Money Market,' is critically important for its analysis of liquidity crises and the role of the lender of last resort. It provides foundational insights into managing financial panics, not merely a historical account of central banking.

Explanation: A 'bridge bank' is a temporary entity, established by regulatory authorities or deposit insurers. Its purpose is to manage the assets and liabilities of a failed bank until a permanent resolution, such as sale to another institution or liquidation, can be achieved. It is not intended to be a permanent fixture.

Explanation: The existence of safety nets, such as deposit insurance or the lender of last resort function, can create a moral hazard. This occurs when banks, knowing they are protected from certain losses or can access emergency funding, may have reduced incentives to avoid excessive risk-taking in their operations.

Explanation: The lender of last resort function is a critical role typically performed by a nation's central bank, not commercial banks. Its purpose is to provide essential liquidity to solvent financial institutions facing temporary funding shortages, thereby preventing systemic crises.

Explanation: While transparency is generally considered beneficial for preventing crises by enabling better assessment of institutional health, the subprime mortgage crisis (2007-2010) is often cited as an example where a lack of transparency regarding complex financial products amplified uncertainty and hindered effective risk assessment, contributing to the crisis.

Explanation: When preventive measures fail and a banking panic looms, banks can seek emergency liquidity from other financial institutions or the central bank. Other measures include imposing withdrawal limits or, in extreme circumstances, declaring a bank holiday to temporarily halt all transactions.

Explanation: Deposit insurance functions as a crucial mechanism to prevent bank runs by guaranteeing depositors' funds up to a specified limit, even in the event of bank failure. This assurance significantly diminishes the primary motivation for depositors to withdraw their money preemptively due to fear.

Explanation: The primary function of a central bank acting as a 'lender of last resort' is to supply short-term liquidity to financial institutions that are solvent but temporarily illiquid. This intervention is vital for maintaining financial stability and preventing liquidity shortages from escalating into systemic crises.

Explanation: Full-reserve banking is a theoretical banking model wherein institutions are mandated to hold 100% of customer deposits in reserve. This means that deposited funds are not lent out, thereby eliminating the fractional-reserve system's inherent liquidity risk.

Explanation: Capital requirements, such as those established under Basel III, enhance bank stability by mandating that banks maintain robust capital buffers relative to their assets. This increased capital adequacy strengthens their capacity to absorb financial shocks and reduces the probability of insolvency, thereby mitigating the risk of bank runs.

Explanation: A 'bridge bank' is a temporary financial institution established by regulatory authorities or deposit insurers to manage the operations and assets of a failed bank. Its purpose is to ensure continuity until the failed bank's business can be sold or liquidated.

Explanation: Moral hazard, in the context of banking safety nets like deposit insurance or lender of last resort facilities, implies that the protection offered may reduce the incentive for financial institutions to exercise prudence and avoid excessive risk-taking, as they are shielded from the full consequences of potential failures.

Explanation: A 'silent run' is characterized by a gradual, often stealthy, withdrawal of funds by depositors and investors. This behavior is typically motivated by diminishing confidence in a government's capacity to backstop its banking system, rather than an immediate fear of a specific bank's failure.

Explanation: A cyber run is not primarily triggered by concerns over long-term solvency due to a cyber-attack. Instead, it is characterized by rapid withdrawals of institutional deposits, prompted by fears of losing timely access to funds or payment capabilities due to operational disruptions caused by a cyber-attack on the bank's systems.

Explanation: The rapid withdrawal of funds from Silicon Valley Bank in March 2023, where customers withdrew substantial amounts in a single day, is frequently cited as a prominent example illustrating the dynamics and speed characteristic of a cyber run, driven by concerns over operational continuity.

Explanation: Research, such as studies on cyber runs, suggests that current prudential liquidity regulations like the Liquidity Coverage Ratio (LCR) may be insufficient. The assumptions underlying LCR calculations might underestimate the extreme speed at which outflows can occur during a cyber-attack, potentially leaving banks inadequately prepared.

Explanation: An 'emergency payment node' is indeed a proposed mechanism intended to safeguard the continuity of critical wholesale payment systems. It is designed to function during systemic operational disruptions, ensuring essential financial transactions can still be processed.

Explanation: A 'silent run' occurs when depositors and investors gradually withdraw funds, often below insured limits, due to a loss of confidence in the government's ability to support its banking system. This differs from a traditional run in its pace and underlying cause.

Explanation: The primary driver of a 'cyber run' is not necessarily concerns about a bank's fundamental solvency, but rather the fear among depositors, particularly institutional ones, of losing timely access to their funds or the ability to conduct payments due to operational disruptions caused by a cyber-attack.

Explanation: Studies on cyber runs suggest a potential inadequacy in current prudential liquidity rules like the Liquidity Coverage Ratio (LCR). The underlying assumptions regarding the speed of deposit outflows may not fully account for the rapid and potentially instantaneous nature of withdrawals during a severe cyber-attack, thus posing a risk.