‘The financial world still needs to worry about the same old things, especially when they present themselves in new forms.’
Many, including us, noted the scope and speed of last month’s bank runs. At Silicon Valley Bank, $42 billion was withdrawn in a matter of hours, thanks in no small part to social media and digital banking.
In the aftermath, a former bank risk executive tweeted about how banks might prevent so-called “bank sprints.” One idea: Boost your bank’s social media presence to make sure customers get accurate and complete information, whatever their platform.
An Economist piece adds to the conversation. Written by a former Bank of England senior advisor, it considers both digital and old-school concerns.
Go slow on CBDCs. Huw van Steenis writes that how the recent liquidity crisis unfolded is a warning about any rush to central-bank digital currencies (CBDCs). In particular, he cites money market funds’ ability to safely park money at the Fed’s overnight “reverse repurchase” facility at high interest rates. That allowed funds to pay higher rates to customers, and contributed to massive deposit shifts.
“The recent panic saw deposit flight from banks to vehicles that are closer to the state,” writes van Steenis, vice chair at Oliver Wyman. “A CBDC account would offer yet another outlet for these funds. ... Now is not the time to charge ahead with innovations that add new concerns.” (A recent RMA Journal article provides a banker’s perspective on the pluses and minuses of a U.S. CBDC.)
Van Steenis also sees some decidedly analog ways to prevent digital bank runs. For example, regulators will need to enhance their ability to predict future problems and deescalate current ones, while staying focused on “the old risks.”
“The financial world still needs to worry about the same old things,” he writes in conclusion, “especially when they present themselves in new forms.”