Insightful Investor #80 - Andrew Metrick: Master Class in Financial Crises & Bank Runs
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Jul 22, 2025 Andrew Metrick, the Janet Yellen Professor of Finance at Yale, delves deep into financial crises and bank runs. He reveals the vulnerabilities of the banking system and discusses critical lessons from recent crises, particularly the SVB collapse. Andrew emphasizes the pivotal role of central banks in crisis management and explains the nuances between liquidity and solvency issues. He also critiques the evolution of deposit insurance and highlights the systemic risks confronting today’s financial landscape. Prepare for some insightful revelations!
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Banks Bridge Savings and Investment
- The financial system efficiently transforms savings into investments by connecting savers to entrepreneurs.
- Banks facilitate access to money while funding long-term projects, balancing liquidity and investment needs.
Central Banks as Lenders of Last Resort
- Central banks originated as emergency lenders to provide liquidity during bank runs.
- Their unique authority comes from government backing to ensure money supply elasticity.
Mismatch Drives Bank Vulnerability
- The key vulnerability in banking is the mismatch between demandable liabilities and illiquid assets.
- This mismatch inherently risks runs when many want money simultaneously but investments take time to mature.
