Financial institutions are vulnerable to runs and panics from "summary" of The Economics of Money, Banking and Financial Markets, eBook, Global Edition by Frederic S. Mishkin
Financial institutions are vulnerable to runs and panics due to their structure and the nature of their liabilities. Banks, for example, engage in maturity transformation by borrowing short-term and lending long-term. This process exposes them to liquidity risk, as depositors may demand their funds back all at once, leading to a run on the bank. Moreover, financial institutions rely heavily on confidence and trust from depositors and investors. If there is a loss of confidence in the institution's ability to meet its obligations, it can trigger a panic where everyone rushes to withdraw their funds simultaneously. This can quickly spiral out of control and lead to the colla...
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