Richard Squire on fractional reserve banking and recent bank failures

Banking is inherently risky the way we do it in the developed world, where you have a bank that takes deposits that can leave at any time.  Depositors can demand their money and get it back at any time and then the bank turns around and invests the depositor money in long-term assets, in a 30-year mortgage or a 10-year Treasury bill or a loan to a business that might last a few years.  So this is inherently a rickety structure and when lots of depositors want to pull out their money at the same time, the bank becomes illiquid, it runs out of cash and often it fails.

So what we saw last week at SVB and to a certain extent at Signature [Bank] was a classic bank run.

~ Richard Squire, Fordham University School of Law, Yahoo Finance interview, 0:55 mark, March 17, 2023