Essay by keropyJunior High, 7th grade November 2004

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This paper analyses the significance of bank runs in today's banking system. The first section researches some of the origins that cause bank runs to take place and its effect it has on the country's economy. It is found that some of the causes have been a result of:

· Decline in the terms of trade

· Economic growth and inflation rates

· Bank-lending booms

· Decline in equity prices

· Increase in bank liabilities

The second part of this research deals with policies in which the central bank should adopt once a systemic crisis is imminent. The research focuses on Lindgrens studies and thus there is a strong influence of the procedures undertaken from banking crises in Asia. It is found that these policies are achieved through the use of liquidity support, blanket guarantees, capital controls and debt restructuring, and closure of financial institutions.

The final part of this analysis suggests a bank-restructuring program is important to alleviate the problem associated with a bank crisis.

It has been found through the paper of Santomero and Hoffman that there is three possibilities one can implement to regain the health of the bank. These are the continuing operations option, merger option, and the final payout option, which involves liquidating the assets of the bank to pay off creditors. Several tools in the continuing operations option are that of forbearance, nationalization of the institution, & regulatory control. In terms of the Merger option it is necessary to have a good balance sheet position and thus a good-bank, bad-bank split is necessary for future mergers.

Banking crises have been significant in today's banking sector. According to Lindgren(1996) it has been reported that over the 1980-96 period, at least two-thirds of International Monetary Fund(IMF) member countries has experienced these banking crises.

Caprio and...