Principle of Bank Run/ Collapse/Fail : Risk Management

Over the past few weeks we have witnessed the collapse of few largest and most reputed banks in the history from US to Europe, namely SVB to Credit Suisse.

Though it can be credited to failure of internal risk management systems at place, we also need to understand some scientific mechanism of bank run that could possibly happen to any bank for that matter in future. 

The Banking and Insurance Industry runs on the fundamental principle where Simultaneity is not well desired. The meaning is all the customers or claims should be allocated in differently over dimension of time. All of the demands shouldn't come up at the same time. If this happens, it would lead to collapse of bank or insurance companies.

It could happen to any bank to insurance company. Hence the public confidence and sentiment which  is extremely volatile must be the priority to survive. One never knows if one bad news could ruin the institutions run over the decades or even more than a century. 

The key to Risk Management is restore that trust among the investors, public as they behave randomly in case of panic.