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Maybe a stupid question: if banks can collapse from a bank run, shouldn’t the entire model be questioned? A bank run is simply when a threshold number of custo

Maybe a stupid question: if banks can collapse from a bank run, shouldn’t the entire model be questioned? A bank run is simply when a threshold number of customers decide to withdraw their cash, with every right to do so. With social media + frictionless mobile banking, the entire notion of teetering your model on mitigating the risk of a “bank run” seems anti-customer, regressive, and unsustainable.

yCombLinks 4y ago
Most depositor's money is insured by the government, so there is no reason people would panic withdrawal their money
- LandR 4y ago
  In the UK, you are only covered up to £80k though... I could understand people wanting to get at least money over £80k out, but also how long does it take to get access to your cash if you have to go through the government insurance procedure. Is it days, weeks, months ? I have no idea and wouldn't want to have to find out.
  - Gare 4y ago
    I was suprised to learn that in the US deposits are insured up to $250K since 2008. In the EU it's only 100K euros and it seems low.
  - compiler-guy 4y ago
    In the US, typically the bank is closed Friday afternoon and depositors have access to their insured money Monday morning. In this case, depositors lost access to their money in the middle of Friday morning and will have access to their insurances deposits Monday morning. So a very brief outage in the typical case. And about five or so extra hours in the SVB case. An FDIC takeover is efficient and well oiled.
  - zhte415 4y ago
    > In the UK, you are only covered up to £80k though... Per bank.
    - tome 4y ago
      Per banking group - a dangerous distinction! If you have 80k GBP in each of Bank of Scotland, Halifax and Lloyds Bank then you have 160k GBP at risk!
- mghfreud 4y ago
  But if they panic, bank will go down.
itsoktocry 4y ago
>How can a business model rely on this? Customers also want to earn easy, high interest, that's the main issue. You're taking a risk (albeit a small one) with your deposits; your money is being lent by the bank and they pay you interest in return. If you only want your cash to be held safely, put it in a safety deposit box.
- notmindthegap 4y ago
  How many people are actually parking their money at a bank to earn high interest? My guess is for most, the safety deposit box is their bank account.
  - icegreentea2 4y ago
    Don't want to move the goalposts, but I think it's more accurate to say that most people (and companies) park their money in banks with the following expectations: * It's easily and quickly available * The number only goes smaller when the account owner authorizes it for stuff the account owner wants to spend money on * The account owner does not have to think about any of the actual logistics of making the above Naturally, these are in tension - it costs money to make all of this happen. And since people want the number in the account to not go down (through fees or whatever), then 'naturally' the bank needs to make $$$ somehow. The flip side of your original question about "business model" validity is that the business model is heavily subsidized by the state and overall society because this particular business model generates a lot of liquidity, which is generally believed to be net beneficial for governments, societies and countries. In effect, this entire business model and all the regulation and laws and structures put in place are attempting to systemically will into being a high-trust environment. The possible downsides of this system more or less scale with the size of the gap between the actual underlying society, and the degree of trust implied by the system.
- deleted 4y ago
  [deleted]
- macinjosh 4y ago
  Give me a break, no one is getting high interest returns from their cash savings account. A pittance is given to savers so banks cause my money for lending. Yet, when I want to borrow money from the bank on their credit card the interest rate is in the double digit percentages.
Gare 4y ago
Yes, the alternative is CBDC (central bank digital currency). But it also has its problems.
benchaney 4y ago
SVB didn’t collapse because of the bank run. There was a bank run because they collapsed. It is true that the bank run may have accelerated the collapse slightly but they were in really bad shape before it started. A lot of people want to blame depositor panic, but I don’t think that is really fair. In a properly managed bank, the assets exceed the liabilities, which means that if people want their money out, the bank can liquidate their assets to pay them and still have money left over. SVB’s assets are worth far less than their liabilities (to the tune of nearly $100B dollars by some estimates). Panicking depositors didn’t cause that.
- notmindthegap 4y ago
  I’m not blaming depositors. In fact, I think depositors have a right to panic withdraw. They’re making a decision to take business elsewhere, as they should. That that can cause or accelerate collapse makes me question the entire bank model. What other model leads to instant death, damage to their entire customer base, and collateral damage to the broader system, when a certain number of customers decide to go elsewhere?
  - benchaney 4y ago
    I wasn't talking about you when I was saying that some people are blaming depositors. Some other commenters are really angry at the VCs that participated in the run. Their anger is understandable, but misplaced in this case IMO. > What other model leads to instant death, damage to their entire customer base, and collateral damage to the broader system, when a certain number of customers decide to go elsewhere? None of these things happened because some customers decided to go elsewhere. They were going to happen anyway. SVB was in really terrible shape and was already in the process of collapsing.

yCombLinks 4y ago

Most depositor's money is insured by the government, so there is no reason people would panic withdrawal their money

LandR 4y ago
In the UK, you are only covered up to £80k though... I could understand people wanting to get at least money over £80k out, but also how long does it take to get access to your cash if you have to go through the government insurance procedure. Is it days, weeks, months ? I have no idea and wouldn't want to have to find out.
- Gare 4y ago
  I was suprised to learn that in the US deposits are insured up to $250K since 2008. In the EU it's only 100K euros and it seems low.
- compiler-guy 4y ago
  In the US, typically the bank is closed Friday afternoon and depositors have access to their insured money Monday morning. In this case, depositors lost access to their money in the middle of Friday morning and will have access to their insurances deposits Monday morning. So a very brief outage in the typical case. And about five or so extra hours in the SVB case. An FDIC takeover is efficient and well oiled.
- zhte415 4y ago
  > In the UK, you are only covered up to £80k though... Per bank.
  - tome 4y ago
    Per banking group - a dangerous distinction! If you have 80k GBP in each of Bank of Scotland, Halifax and Lloyds Bank then you have 160k GBP at risk!
mghfreud 4y ago
But if they panic, bank will go down.

itsoktocry 4y ago

>How can a business model rely on this? Customers also want to earn easy, high interest, that's the main issue. You're taking a risk (albeit a small one) with your deposits; your money is being lent by the bank and they pay you interest in return. If you only want your cash to be held safely, put it in a safety deposit box.

notmindthegap 4y ago
How many people are actually parking their money at a bank to earn high interest? My guess is for most, the safety deposit box is their bank account.
- icegreentea2 4y ago
  Don't want to move the goalposts, but I think it's more accurate to say that most people (and companies) park their money in banks with the following expectations: * It's easily and quickly available * The number only goes smaller when the account owner authorizes it for stuff the account owner wants to spend money on * The account owner does not have to think about any of the actual logistics of making the above Naturally, these are in tension - it costs money to make all of this happen. And since people want the number in the account to not go down (through fees or whatever), then 'naturally' the bank needs to make $$$ somehow. The flip side of your original question about "business model" validity is that the business model is heavily subsidized by the state and overall society because this particular business model generates a lot of liquidity, which is generally believed to be net beneficial for governments, societies and countries. In effect, this entire business model and all the regulation and laws and structures put in place are attempting to systemically will into being a high-trust environment. The possible downsides of this system more or less scale with the size of the gap between the actual underlying society, and the degree of trust implied by the system.
deleted 4y ago
[deleted]
macinjosh 4y ago
Give me a break, no one is getting high interest returns from their cash savings account. A pittance is given to savers so banks cause my money for lending. Yet, when I want to borrow money from the bank on their credit card the interest rate is in the double digit percentages.

Gare 4y ago

Yes, the alternative is CBDC (central bank digital currency). But it also has its problems.

benchaney 4y ago

SVB didn’t collapse because of the bank run. There was a bank run because they collapsed. It is true that the bank run may have accelerated the collapse slightly but they were in really bad shape before it started. A lot of people want to blame depositor panic, but I don’t think that is really fair. In a properly managed bank, the assets exceed the liabilities, which means that if people want their money out, the bank can liquidate their assets to pay them and still have money left over. SVB’s assets are worth far less than their liabilities (to the tune of nearly $100B dollars by some estimates). Panicking depositors didn’t cause that.

notmindthegap 4y ago
I’m not blaming depositors. In fact, I think depositors have a right to panic withdraw. They’re making a decision to take business elsewhere, as they should. That that can cause or accelerate collapse makes me question the entire bank model. What other model leads to instant death, damage to their entire customer base, and collateral damage to the broader system, when a certain number of customers decide to go elsewhere?
- benchaney 4y ago
  I wasn't talking about you when I was saying that some people are blaming depositors. Some other commenters are really angry at the VCs that participated in the run. Their anger is understandable, but misplaced in this case IMO. > What other model leads to instant death, damage to their entire customer base, and collateral damage to the broader system, when a certain number of customers decide to go elsewhere? None of these things happened because some customers decided to go elsewhere. They were going to happen anyway. SVB was in really terrible shape and was already in the process of collapsing.