Why Banks Fail - Runs, Regulation, and the Risks of Short-Term Debt

Explore the fundamental causes of financial crises through this economics lecture featuring Nobel laureate Douglas Diamond from the University of Chicago's Becker Friedman Institute. Delve into Diamond's groundbreaking research on banking theory, examining why banks exist and what makes them susceptible to runs, with particular focus on how short-term debt creates systemic vulnerabilities. Learn about Diamond's advisory role during the 2008 financial crisis and discover his early predictions about the savings and loan disaster from his graduate studies in the 1970s. Gain insights into the evolution of financial instruments like the 30-year mortgage and understand how seemingly beneficial financial products can become problematic when combined with risky practices. Examine the intersection of private finance and public regulation, and understand the historical context of bank supervision in America through Diamond's expert analysis of financial system stability and crisis prevention.