Complex Systems with Patrick McKenzie (patio11) The banking crisis, two years later
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Jan 23, 2025 The conversation dives into the real dynamics of the recent banking crisis, highlighting that 22 banks faced significant deposit outflows, mostly driven by institutional players. It challenges the traditional narratives around bank runs, emphasizing the often unseen shifts between banks rather than outright withdrawals. The impact of rising interest rates on stability is explored, alongside critiques of government communications and public trust in financial narratives. This insightful analysis sheds light on the complexities of modern banking systems.
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More Banks Than Expected Experienced Runs
- A Fed study identified 22 banks experiencing severe runs in March 2023, far exceeding the two failures.
- These runs, driven by large depositors and weak balance sheets, highlight the importance of coordination.
Modern Deposit Runs
- Deposit runs involve depositors moving funds to other banks, not just withdrawing cash.
- This modern dynamic is reflected in interbank payment data.
Silvergate's Voluntary Wind-Down
- Patrick McKenzie explains why he initially cited three bank failures instead of two.
- Silvergate's "voluntary" wind-down, influenced by regulators, blurs the lines between failure and closure.