And these institutions have done just that, despite all the regulations designed to stop them. While banks over this period fared better, more than 1,000 failed, and roughly that many are on the regulators' problem list, including some of our nation's largest institutions. The objective of current policy is not so much to prevent a bank run but rather to prevent a bank run from spreading systemwide. The concern is that any single bank run might become contagious and cause a banking panic. Eliminating even the possibility of a bank run in order to prevent panics, however, is overkill.
Bank runs have an important role to play in promoting bank safety.
And there is a better way to prevent banking panics than eliminating bank runs. Under current policy we lose the disciplining benefits of bank runs. Without full deposit insurance, just the potential of a bank run would limit a bank's willingness to take on risk. And runs on troubled banks are the market's way of ensuring prompt closure. It is unlikely that bank regulators can do better.