The whole commercial banking structure is built on the foundation of “sticky” deposits - but these are now fast-moving and volatile.
Banking executives around the world have been gripped by a growing sense of dread as they realise the consequences of the extraordinary upheaval in their sector which appears likely to culminate in the emergency takeover ofAlthough bank runs have occurred through history, the extraordinary size and speed of deposit outflows we’ve seen in the latest banking panic is unprecedented.
“Once deposits become fluid, it undermines the whole banking model at its most fundamental level,” he says. Their grand gesture, aimed at reassuring investors that the US financial system was stable, failed to achieve its goal. The share price of First Republic Bank tumbled a further 33 per cent on Friday, as investors continued to worry about its heavy dependence on deposits that could turn out to be flighty.
This failed to arrest the slide in Credit Suisse’s share price, or to stem the deposit outflows, which were running at more than 10 billion Swiss francs a day late last week.The sheer quantum of outflows from Switzerland’s second-largest bank has forced bankers to confront the sobering fact that their retail deposits have become much more volatile than in the past.
It’s also true that there’s little love lost between most people and their banks. The reputation of bankers was shattered first by the financial crisis, which highlighted how greed drove reckless risk-taking. Now funds transfer is frictionless. Because most people have more than one banking relationship, it’s easy and quick for them to transfer funds between lenders.
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