Silicon Valley Bank was shut down by regulators on Friday.
Silicon Valley Bank’s rapid implosion showed how bank runs can go at warp speed in the digital age.
SVB’s customers tried to withdraw funds at a rate of nearly $500,000 per second Thursday.
Bank regulation rollbacks by President Trump in 2018 have also been blamed for SVB’s demise.
If the spectacular collapse of Silicon Valley Bank has shown us one thing, it’s the speed at which a bank run can take place in the digital age.
Panicked SVB clients tried to withdraw $42 billion from the bank on Thursday — equivalent to nearly $500,000 per second over a 24-hour period — and the bank simply couldn’t meet the demand.
For context, the biggest bank run of the 2007-08 financial crash saw $16.7 billion withdrawn from Washington Mutual, a savings and loan bank, over the course of 10 days.
In an era where a bank’s customer base can demand instant money at the tap of a smartphone key or click of a mouse, US lenders are sitting on an estimated $620 billion worth of losses from assets they can’t easily sell to meet a wave of withdrawals.
But while digital banking meant SVB’s collapse accelerated to warp speed, its foundations had been left shaky. For at least part of this we can thank Donald Trump’s rollback of banking regulations in 2018, which did away with so many of President Obama’s post-financial crisis protections.
The rise of digital banking
As banks moved on from the 2007-08 crisis, demand for mobile banking exploded, catalyzed in part by the launch of the iPhone in 2007. Digital banking, and the expectation of instantaneous transactions, is now the norm for the internet generation.
Commenting on SVB’s collapse in a tweet Monday, Mohamed El-Arian, the chief economic adviser of Allianz, pointed to the “supersonic speed of information flows and deposit flight” in a world of “tech-enabled banking.”
James Bianco, president of Bianco Research, said smartphones had removed “the frictions of standing in line” at banks and tellers being instructed “to count money slowly” if withdrawals spiked.
Bianco said SVB’s collapse should “scare the hell” out of bankers and regulators worldwide. “The entire $17 trillion deposit base is now on a hair-trigger expecting instant liquidity,” he said.
OpenAI CEO Sam Altman, formerly president of Silicon Valley startup incubator Y Combinator, which heavily depends on SVB,
Source:: Business Insider