The bank run should have been neutralised by the Fed lender of last resort function.
The problem was that the bank didn't have the collateral or the income to pay the Fed's rate.
The assets the bank had were poor quality and didn't generate enough income. If the Fed won't lend, why would anybody invest in the bank. Far better to turn up at the auction and pick up the assets for cents on the dollar.
The problem was that the bank didn't have the collateral or the income to pay the Fed's rate.
The assets the bank had were poor quality and didn't generate enough income. If the Fed won't lend, why would anybody invest in the bank. Far better to turn up at the auction and pick up the assets for cents on the dollar.