5 [30]  offers liquidity to households and firms by providing liquid deposits and illiquid loans. This creates a liquidity mismatch for the bank. A further problem here is that the bank's assets can be difficult for an outsider to evaluate. As a result, a bank's financial situation depends to a very large extent on the trust its customers have in it. A bank builds trust by having plenty of equity, good earnings, low loan losses and good liquidity. And not least important: a sound culture where risk management is central. Confidence is essential for a bank, but it can also disappear quickly. If this happens, there is a great risk that depositors and other financiers will want to withdraw their money quickly. The risk is that the depositors who arrive first can withdraw their money while those who arrive later are left without, as the bank's liquid assets are then exhausted. This is precisely the reason why bank runs can occur. It can also lead to other financiers quickly withdrawing their funding. If the bank is bad, it should obviously be wound up. The problem is that it is difficult to tell whether or not a bank is bad, so there can be a run on good banks as well. Experience also shows that even bad banks should be wound up in an orderly fashion. There are several reasons for this. One reason is what I just mentioned: banks are highly dependent on trust and are difficult to evaluate.
Former Bank of England Governor Mervyn King recently launched a more drastic idea, that a bank must hold more assets that can be used as collateral in the central bank than it has liabilities (including deposits) that can suddenly flow outwards.10 In this way, central banks could always intervene and have sufficient access to liquid funds. Admati et al. note in a response that the consequence of this would be that the authorities also supported bad banks, which would reinforce moral hazard problems and lead to banks that should be wound up not being wound up.11 There is a risk that we would then have so-called Zombie banks, and this would have negative effects on growth and efficiency. In any case, I believe that the instability of deposits is an issue that legislators and regulators around the world need to analyse more closely. The resolution framework also needs to be reviewed The second question concerns the resolution framework. This was introduced after the global financial crisis and the explicit purpose is to make it possible to resolve a systemically important bank in an orderly manner. The idea is that losses should be borne primarily by shareholders and secondarily by bondholders. Public funds should not need to be used. Allowing bondholders to bear potential losses also reduces the problems of moral hazard. So if you can use an effective resolution framework as intended, you reduce the problems created by the deposit guarantee. 10  See King (2023). 11 See Admati, Hellwig and Portes (2023).