When technology changes then so does everything else

Well, yes, obvious but sometimes we do need the obvious pointed out:

On Wednesday, the bank revealed it was selling some of these investments at a loss to raise cash. Its shares promptly went into freefall.

At that point “Slack and WhatsApp groups lit up across the startup scene”, according to the Wall Street Journal. A mild panic turned into a stampede in the time it took clients to open their banking apps and transfer money with a few swipes of their finger.

By the close of play on Thursday, depositors had withdrawn $42bn from SVB. That night the Federal Deposit Insurance Corporation stepped in and seized the bank before it reopened on Friday morning.

Modern technology does indeed mean that information moves faster, that people can react to that information more quickly. This does indeed change things.

Time was when a bank might go bust and people 100 miles away would hear of the bank run days, even weeks, after it had happened. There’s a considerable literature insisting that 19th century American banking out west actually worked on this very basis. Northern Rock needed that film of depositors besieging offices to become the flood. Today, smartphones, banking apps, it all happens much faster.

OK. Now what?

Well, the answer is not very much to be honest. All banking is always a confidence trick in the sense that once the confidence is gone then so is the bank. That’s just fractional reserve banking for you.

We’re still there with the original question. Is the maturity transformation we gain from FRB worth having, even at the cost of runs? If it is then, well, there we are. If it isn’t then equally so. But that is the actual question. That modern technology enables them to happen faster is an interesting observation but not the nub of the matter at all.

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