"Digital Bank Run": What do the three bankrupt U.S. banks have in common?

Highlights: Three U.S. banks went bankrupt in less than two months due to financial instability. Financial services through SNS and the Internet accelerated the speed of outflow of deposits. In the United States, it is also called "digital bank run", which means the attaching of deposits in the digital age. A series of bank failures in March heightened financial instability in the U.K. and Europe. The banks' failure has raised concerns about the management of other banks in the region. The situation is similar to that in Japan, where a bank went bankrupt on March 5.

【NHK】First Republic Bank, an American bank, has gone bankrupt. In the United States, two years after the bankruptcy of Silicon Valley Bank ...

The American bank "First Republic Bank" went bankrupt. In the United States, it is an unusual situation in which three banks failed less than two months after the bankruptcy of Silicon Valley Bank.

Why are bankruptcies occurring one after another? What all three bankrupt banks had in common was that financial services through social media and the Internet accelerated the outflow of deposits. In the United States, it is also called "digital bank run", which means the attaching of deposits in the digital age.

Background to the bankruptcy of First Republic Bank

First Republic Bank, which went bankrupt, was a regional bank based in western California, founded in 1985, and was known for its business for the wealthy.

Fed rate hike Large unrealized losses such as low-interest mortgages

Banks were focusing on lending for mortgages and commercial real estate.

Against the backdrop of monetary easing, we have increased our business performance by providing a large number of mortgages to customers at fixed low interest rates.

However, due to the rapid interest rate hike by the Fed = Federal Reserve from last year, the interest rate when banks raise funds has risen, and mortgages provided at low interest rates have a large unrealized loss.

High percentage of unprotected deposits Withdrawal movement

Against this backdrop, a series of bank failures in March heightened financial instability.

In the U.S., deposit protection protects up to $3,1 per account, or about 25 million yen in Japan yen, when a bank fails.

However, First Republic Bank estimated that the percentage of unprotected deposits in its deposit balance at the end of last year was about 3400%, which led to a widespread movement among customers to withdraw deposits.

In response to the fact that the outflow of deposits did not stop, 67 major financial institutions took measures to close the holes, so to speak, by receiving deposits as an unusual support measure.

Deposit balance fell by nearly 10 trillion yen, and stock prices plunged further outflow of deposits

It seemed to have calmed down for a while, but when the financial results announcement on March 24 revealed that the balance of deposits had decreased by nearly 3 trillion yen as of the end of March, concerns about management suddenly increased.

Stock prices plummeted on the 10th, and as of the 25th, more than 28.1 trillion yen in deposits at Japan yen were outflowed in less than a month.

According to Bloomberg and others, banks made plans to strengthen their financial position by selling mortgage receivables that had decreased in value by attaching special bonds that could be converted into stocks, but no bank appeared to underwrite mortgage receivables that had fallen in value, and the stock price plummeted further, leading to bankruptcy.

"Digital Bank Run" Accelerating the Outflow of Deposits with Digital

All three banks, which went bankrupt one after another in less than two months due to financial instability in the United States, all had in common that financial services through SNS and the Internet accelerated the speed of deposit outflows.

In the United States, it is also called a "digital bank run" in the sense of attaching deposits in the digital age.

In the case of Silicon Valley Bank, which went bankrupt first, when the loss due to the sale of bonds, which triggered increased management concerns, was announced on March 2, deposits of 3 billion dollars, or more than 3 trillion yen, were outflowed on the 8th of the next day alone, and 9 billion dollars of deposits were expected to flow out on the 420th, just two days after the loss was revealed. The company went bankrupt on March 5.

The outflow of deposits accelerated by the spread of posts on social media about concerns about the management of Silicon Valley Bank.

Some of them urged people to withdraw their deposits, saying, "Withdraw your money, ask questions later."

The fast outflow of deposits has raised concerns about the management of other banks.

Venture Capital Owner: "Side effects of being connected"

Mulatto Aktihanoru, who runs a venture capital firm that invests in startups in New York, was one of those affected by the bankruptcy.

We have profited from listing stocks to promote growth while backing up the companies we invested in with funds, but 30 of our portfolio companies had deposits in Silicon Valley Bank, and their accounts were frozen due to unexpected bankruptcy.

At that time, Aktihanoru was busy with the cash flow of his portfolio companies, and was surprised by the speed at which information spread through SNS and deposits flowed out, and he felt the fear of financial instability in the digital age.

Actihanoru says, "Being connected has side effects, and when people say something, everyone follows suit and it snowballs. On all kinds of social networks like Facebook and Twitter, you can actually plant an idea and it spreads quickly. The rapid flow of information through the network is positive in some aspects, but at the same time it is not good in this situation. Everybody comes together and panics."