Under the fractional reserve system we use bank runs are always a threat because banks are inherently leveraged institutions. That is, the law allows them to buy assets (various types of loans, usually) far in excess of their reserves (your deposits). Their aim is to make money out of the difference in what interest rate they pay to depositors and the return on the assets that they buy.
However, in a bank run they need to liquidate assets quickly, but that can be a huge problem because their assets may be illiquid or may be marked down relative to what they will eventually pay out if, for example, interest rates have risen sharply. As such, a run can cause a bank which would be perfectly fine under normal circumstances to suddenly become insolvent.
If they had the cash like they say they did, a run would not kill them. That only happens when you can't cover your deposits.
So they were over stretched to the point of having forty percent or less of their deposits? Boy, if I had them for a bank I'd get my money out quick.
Shouldn't a bank be able to handle a bank run?
Under the fractional reserve system we use bank runs are always a threat because banks are inherently leveraged institutions. That is, the law allows them to buy assets (various types of loans, usually) far in excess of their reserves (your deposits). Their aim is to make money out of the difference in what interest rate they pay to depositors and the return on the assets that they buy.
However, in a bank run they need to liquidate assets quickly, but that can be a huge problem because their assets may be illiquid or may be marked down relative to what they will eventually pay out if, for example, interest rates have risen sharply. As such, a run can cause a bank which would be perfectly fine under normal circumstances to suddenly become insolvent.