Bank stability issues

One of the major roles of banks and other financial intermediaries is to channel funds from savings into valuable projects. In doing so, banks engage in “liquidity and maturity transformation,” since they finance long-term, illiquid projects while funding themselves with short-term, liquid liabilities. By performing this important role, banks expose themselves to the risk of runs: If depositors or other short-term creditors worry about their claims, they may withdraw funds en masse and cause the bank to fail.