[Mobile Phone Bank Runs] "This Should Scare The Hell Out Of Bankers & Regulators Worldwide"
ZeroHedge Covers How Mobile Banking Is Accelerating Bank Runs "The entire $17 trillion deposit base is now on a hair trigger expecting instant liquidity."
From "everyday joes" to the corporate CFOs, men, women, and others, are frantically battling a prisoner's dilemma about their banking relationship this weekend: "I’m fine if they don’t draw their money, and they’re fine if I don’t draw mine..."
But, given the lines outside banks and less than reassuring sentiment from Washington, we suspect it is too late and the that dilemma is over - now it's every man, woman, and child for themselves. As The FT report on one CFOs decision-tree:
“I got a text from another friend - he was definitely moving his money to JPMorgan. It was happening,” the finance chief said.
“The social contract that we might have collectively had was too fragile. I called our CEO and we wired 97 per cent of our deposits to HSBC by midday on Thursday.”
And as explained below, the new normal 'bank run' is instant, huge, and devastating.
Given that there are many 'bad' (read: biased and/or uninformed) takes on the situation at SVB, Bianco Research's founder and President, Jim Bianco, tried to clarify in a brief Twitter thread: (emphasis ours)
This is not a solvency crisis like 2008.
Bad loans or poor investments were not made. Money was not lost. So, everyone is going to get their money back. (And please no takes about no interest rate hedging. Asset/liability mismatches are how banking works.)
[ZH: We agree broadly but do worry, as we detailed on Thursday, about the CRE/office exposure overhang on small banks and how higher rates will actually translate to actual loan losses, not just HTM "temporary" losses.]
Instead this is an old fashion 1930s liquidity crisis.
Too many depositors demanded cash at once (as in right now) and SVB (and SI) could not convert loans and securities (and crypto) to cash that quickly. So, everyone is getting their money back from SVB (and SI), just not at 8AM Monday. And, yes this is a big problem as this is working capital for a lot of companies. They have payrolls to meet and vendors to pay next week. And if they don’t pay bills and employees, they in turn don’t pay their bills and this can quickly cascade into a major economic problem.
The important question is why so many demanded their money back at once.
And I’m not referring to the last two days. I’m asking about the days/weeks leading up to this last two days forcing SVB to sell securities and realize a $1.8B loss, necessitating a capital raise. Why were depositors withdrawing in big enough amounts before Thursday/Friday?
First, welcome to the world of mobile banking.
Gone are the frictions of standing in line with tellers instructed to count money slowly. (Media images of lines Friday were largely gawkers)
Question: How did $42 billion get withdrawn Friday alone without thousands in line?
Answer: your phone!
This is not the Bailey Savings and Loan anymore.
This should scare the hell of bankers and regulators worldwide.
The entire $17 trillion deposit base is now on a hair trigger expecting instant liquidity.
Add in social media and millions get a message, like Peter Thiel telling Founders companies to pull out, or Senator Warren gloating that SI went under, and pick up their phone open a Chase account and Venmo-ed their life savings into it in 10 minutes.
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