Bank failure in the context of "Economic depression"

A bank run or run on the bank occurs when many clients withdraw their money from a bank, because they believe the bank may fail in the near future. In other words, it is when, in a fractional-reserve banking system (where banks normally only keep a small proportion of their assets as cash), numerous customers withdraw cash from deposit accounts with a financial institution at the same time because they believe that the financial institution is, or might become, insolvent. When they transfer funds to another institution, it may be characterized as a capital flight. As a bank run progresses, it may become a self-fulfilling prophecy: as more people withdraw cash, the likelihood of default increases, triggering further withdrawals. This can destabilize the bank to the point where it runs out of cash and thus faces sudden bankruptcy. To combat a bank run, a bank may acquire more cash from other banks or from the central bank, or limit the amount of cash customers may withdraw, either by imposing a hard limit or by scheduling quick deliveries of cash, encouraging high-return term deposits to reduce on-demand withdrawals or suspending withdrawals altogether.

A banking panic or bank panic is a financial crisis that occurs when many banks suffer runs at the same time, as people suddenly try to convert their threatened deposits into cash or try to get out of their domestic banking system altogether. A systemic banking crisis is one where all or almost all of the banking capital in a country is wiped out. The resulting chain of bankruptcies can cause a long economic recession as domestic businesses and consumers are starved of capital as the domestic banking system shuts down. According to former U.S. Federal Reserve chairman Ben Bernanke, the Great Depression was caused by the failure of the Federal Reserve System to prevent deflation, and much of the economic damage was caused directly by bank runs. The cost of cleaning up a systemic banking crisis can be huge, with fiscal costs averaging 13% of GDP and economic output losses averaging 20% of GDP for important crises from 1970 to 2007.

An economic depression is a period of carried long-term economic downturn that is the result of lowered economic activity in one or more major national economies. It is often understood in economics that an economic crisis and the following recession that may be termed an economic depression are part of economic cycles where the slowdown of the economy follows economic growth and vice versa. It is a result of more severe economic problems or a downturn than a recession itself, which is a slowdown in economic activity over the course of the normal business cycle of growing economy.

Economic depressions may also be characterized by their length or duration, showing increases in unemployment, larger increases in unemployment or even abnormally large levels of unemployment (as with for example some problems in Japan in incorporating digital economy, that such technological difficulty resulting in very large unemployment rates or lack of good social balance in employment among population, lesser revenues for businesses, or other economic difficulties, with having signs of financial crisis, that may also reflect on the work of banks, or may result in banking crisis (in various ways that may be for example unauthorized transformations of banks), and further the crisis in investment and credit; that further could reflect on innovation and new businesses investments lessening or even shrinking, or buyers dry up in recession and suppliers cut back on production and investment in technology, in financial crisis that may be more country defaults or debt problems, and further in feared businesses bankruptcies, and overall business slowdown. Other bad signs of economic depression could be significantly reduced amounts of trade and commerce (especially international trade), as well as in currency markets that maybe fluctuations or unexpected exchange rates with observed highly volatile currency value fluctuations (often due to relative currency devaluations). Other signs of depression are prices deflation, financial crises, stock market crash or even bank failures, or even specific behaviour of economic agents or population, that are also common or also non common elements of a depression that do not normally occur during a recession.

Basel III is the third of three Basel Accords, a framework that sets international standards and minimums for bank capital requirements, stress tests, liquidity regulations, and leverage, with the goal of mitigating the risk of bank runs and bank failures. It was developed in response to the deficiencies in financial regulation revealed by the 2008 financial crisis and builds upon the standards of Basel II, introduced in 2004, and Basel I, introduced in 1988.

The Basel III requirements were published by the Basel Committee on Banking Supervision in 2010, and began to be implemented in major countries in 2012. Implementation of the Fundamental Review of the Trading Book (FRTB), published and revised between 2013 and 2019, has been completed only in some countries and is scheduled to be completed in others in 2025 and 2026. Implementation of the Basel III: Finalising post-crisis reforms (also known as Basel 3.1 or Basel III Endgame), introduced in 2017, was extended several times, and will be phased-in by 2028.