Because that isn't a physical law.. it's a metric.

That is irrational behaviour. Depositors should spread their cash across multiple banks. This is very basic risk management.

I’m just telling you what I’m seeing.. The “multiple banks” will be the few biggest ones, even if it’s 1/10th of their funds, nobody will accept the risk of a smaller bank.

Except that it's not quite so trivial to open an account at a new bank (especially if everyone decides to do it at the same time) and move US$15 billion dollars by the end of Monday.

I opened a new business account at Wells last fall, it took maybe a week to apply and get approval? In any case, many companies have multiple banking relationships already - if I were in their shoes I’d be moving all of the excess funds to the biggest bank available.

It’s not fair to the well managed small banks but honestly I don’t care at all about my bank, I just want to pay bills. I’d bank at the Federal Reserve if they offered an interest free checking account with unlimited bank insurance.

Not true. Imagine there was only ONE bank.

I see what you’re getting at but people could still withdraw paper money or do international transfers.

A single global bank in a world without paper money/gold/etc might be different.

Of course I am being simplistic and a run can occur precisely because there is more than one bank...

But on the international transfer thing... you selling USD and buying EUR doesn't result in the creation or destruction of any USD or EUR deposits overall, unless the central bank/government is intervening.

Borrowing short term and lending long is what all banks do. The problem here is a lack of diversification.