Modern Bank Failures

Diamond-Dybvig tells us that deposit insurance should have prevented bank runs and bank failures. The US has been having the insurance system for decades, so what was new in 2007-2008?

Krugman's recent post

Other commenters say that lessons from the 1930s are no longer relevant, because now we have deposit insurance. Um, shadow banking? That’s the point I keep trying to make: what happened to us in 2007-8 was that a large banking system had grown up, relying on repo and other forms of short-term borrowing rather than deposits, that wasn’t covered by New Deal-era protections and regulation. So what we had was the 21st-century version of a bank run; not crowds of people lining up at bank doors, but crowds of investors demanding haircuts on repo, which has the same effect.