Assignment Sample on Evaluating How the Modern Economy Prevents a Run on the Banks From Happening

1.0 Introduction

Bank run is a situation of crisis where customers withdraw huge amounts of money from banks. The reason for such withdrawal is mistrust towards the bank. Financial institutions also get engaged in this withdrawal activity and the banks could satisfy customers. However, this paper aims to discuss how the modern economy can prevent this bank run. The paper mainly focuses on market capitalist economy. Market capitalism is the economy that is focused upon in this dissertation.

1.1 Background

Bank runs can have a negative impact on the national economy. Hence, it is necessary to prevent such crisis in banking institutions. It can be reviewed from previous literature that bank run is a common phenomenon in developing countries. However, as stated by Rodriguez-Lara and Rosa-Garcia (2021), in 2007, US faced a massive financial crisis and that was the result of a bank run. In this scenario, almost 300 banks failed and a severe crisis led to the downfall of the national economy. In the modern economy, use of digital innovation and techniques have reduced bank run and have aimed to provide better customer expense.

1.2 Importance and relevance of the topic

When banks have a poorer return profile and smaller capital base, customers are insecure about keeping their money in the bank (Huang and Huang, 2018). Hence, they prefer withdrawal of money from banks so that they do not face any loss if the banks could not recapitalize it. The topic is relevant in today’s scenario as bank is a place where businessman, citizens and financial institutions prefers to keep their money in an expectation of getting higher rate of interest, however, a bank run can change the whole system. Therefore, this paper is important as it helps readers to understand the causes and consequences of bank run. Moreover, the dissertation has also reflected how the modern economy can enhance customer satisfaction to prevent bank run.

 1.3 Research aim

The aim of this research paper is to evaluate the factors of the modern economy that lead to the prevention of bank runs.

1.4 Objective(s) of the study

• To assess the major factors of bank run and putting focus on customer dissatisfaction.
• To evaluate the need of liquidity to prevent bank run
• To analyze the consequences of a bank run that leads to bank failure and selling of valuable assets by banking institutions.
• To examine the ways by which the modern economy can prevent bank runs by large scale industrial production of goods.
• To provide recommendations so that bank runs can be prevented.

1.5 Research questions

• What are the major factors of bank run and how is it related to customer dissatisfaction?
• What is the need of liquidity to prevent bank run?
• What are the consequences of a bank run that leads to bank failure and selling off valuable assets by banking institutions?
• How can the modern economy prevent bank runs by large-scale industrial production of goods?
• What are the strategies that can prevent bank runs from occurring?

1.6 Rationale of the study

As influenced by Kiss (2019), the issue of this topic is the baking failure that can lead to adversities in the national economy, as a consequence of bank runs. Banking organizations provide financial support to many government and non-government organizations. Modern economies have innovative ways to mitigate the consequences of bank runs. The large-scale industrial production has led to an increase in liquidity. Traditional economy was more focused on beliefs and religious faith. Lack of industrial growth led to several issues in cash flow and liquidity. The dissertation aims to focus on the major factors that could have led to a bank run and how modern economy can solve the issues. In future, bank failure can disrupt the economy of a country and pave the way for financial crisis. Hence, this topic is necessary to be researched upon and provide relevant information to readers.

1.7 Issues under consideration in existing literature review

As influenced by Amador and Bianchi (2021), the major issue arises when excessive withdrawal forces banking institutions to sell their valuable assets. Such assets are kept to be sold during financial crisis. However, banks run focus banks to sell assets as the organizations do not have liquid cash. Most of the cash is invested or provided a loan to customers. Banks have assumption that all customers do not withdraw large amounts at same time. However, bank runs lead to a situation of crisis.

1.8 Methodology

Positivism and interpretivism research philosophy issue in this discretion as it helps in collection of quantitative data. Deductive research approach helps in explaining the relationship between variables (Woiceshyn and Daellenbach, 2018). Descriptive research design is used so that every cause and consequence of bank run can be described in detail. Primary and secondary data collection procedures are used as that current data can be collected through surveys and secondary sources of data can be received from peer-reviewed journals.

1.9 Findings

The major findings of the research related to the evaluation of major causes of bank run, the causes include customer dissatisfaction, low return profile and low capital base. As a consequence, the major findings of the paper are the failure of banks that has adverse impact on national economy. Lack of liquidity also leads to inconvenience for banks as excessive withdrawal from banks leads to bank failure.

1.10 Structure of dissertation

The structure of this dissertation consists of five chapters. The first chapter is an introduction tha1t introduces the objectives and aims of this research. second d chapter ii literature review, that reviews various secondary resources to analyze the consequences and causes on bank run and the third chapter is analysis of the findings that are relevant to the topic. The fourth chapter is Data, Methodology, and Results. In this chapter data is collected and results are depicted through regression analysis. Finally, the last chapter summarizes the whole dissertation and recommends ways to prevent bank runs.

1.11 Summary

The dissertation has focused on major consequences and causes of bank run. However, the rationale and relevance of this topic is given in this chapter, it encourages readers to read the dissertation ad gain knowledge about bank run and its impact on national economy. The chapter has aimed to pave the way of research and the readers can gain an overview of the opposing sections by reading the objectives and research questions.

References

Al-Ababneh, M., (2020). Linking ontology, epistemology and research methodology. Science & Philosophy, 8(1), pp.75-91.

Amador, M. and Bianchi, J., (2021). Bank Runs, Fragility, and Credit Easing (No. w29397). National Bureau of Economic Research.

Huang, W. and Huang, Q., (2018). Connectionist agent-based learning in bank-run decision making. Chaos: An Interdisciplinary Journal of Nonlinear Science, 28(5), p.055910.

Kiss, H.J., Rodriguez-Lara, I. and Rosa-Garcia, A., (2019). Does response time predict withdrawal decisions? Lessons from a bank-run experiment. Review of Behavioral Finance.

Rodriguez-Lara, H.J.K.I. and Rosa-Garcia, A., (2021). Experimental Bank Runs.

Woiceshyn, J. and Daellenbach, U., (2018). Evaluating inductive vs deductive research in management studies: Implications for authors, editors, and reviewers. Qualitative Research in Organizations and Management: An International Journal.

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