Economists at the Federal Reserve Bank of Richmond discuss a mechanism for preventing bank runs in an article published on March 7.

Authors Renee Haltom and Bruno Sultanum note that one way to prevent runs is to include a “suspension clause” – if too many redemptions occur, the bank stops making payouts and the run ends. But suspension clauses have drawbacks: they prevent people with a legitimate need for liquidity from accessing it and, on some models, they fail to fully prevent runs.

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