Global financial market convulsions, especially in banking – ‘The hurricane siren is blaring’

Is this 2008 all over again? No, say the pundits — 2008 was due to bad credit; handing out loans that could never have been repaid. This crisis is something else – a liquidity crisis (not enough cash) or a solvency crisis (where liabilities exceed assets), or both. It remains to be seen whether this crisis will disappear with an apologetic smile, or whether it is soon to rise up like the Kraken.

I don’t believe it is going to quietly recede, and here is why:

The first reason is one that seems to have been overlooked. If you spend some time googling images of 2008, you will see lines of worried people lining up at branches and behind ATMs. Sort of like 1929, only in colour. As individual citizens realised that their banks might be in trouble, they often arrived, physically, to get their money the hell out. Or sat on their phones as they tried to get hold of someone at a helpdesk or call centre. 

But in the intervening 15 years technology, mobile deployments and friendly online user journeys have completely changed the landscape. If you want to move your money now, you open an app and click a button or two and you’re done. Bank runs are now pretty much instantaneous and painless, at least for the runner.

And so, for instance, SVP saw $4.2 billion disappearing out of customer accounts every hour over a 10-hour period on 9 March.

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Twitter has also changed the game. If one knows how to deftly avoid the noisy and the nonsensical, you can read some of the smartest financial wonks and commentators who command massive followings on Twitter. They tweet often and with careful forethought, and are seen as excellent barometers of financial trends. Like Nic Carter, who said to his 350,000 followers early during that March week – get your money out NOW. Send it to a safe bank, a big bank, a boring bank. Hundreds of thousands of businesses and depositors did just that, on an iPhone screen, in seconds, sucking the lifeblood of the institutions they left behind.

What are these safe, big, boring banks? They are called G-SIBs. Global Systemically Important Banks. In the US this means Chase and BNY-Mellon and JP Morgan and Bank of America and a few others. There are strict criteria for joining this elite club, governed by something called the Basel Committee on Banking Supervision in Switzerland. Attaining that status means that a bank has been determined to be “too big to fail”. They must be bailed out if they get into trouble to save the global financial system.

 Very safe, we are told. We’ll come back to this.

Throughout modern history, banks were the primary places where you deployed your money. Whether you were a citizen or a business. By the end of the 20th century, they were offering checking and savings and tax-free what-nots and securities and T-bills and money markets and CDs and more. You simply transferred your money there and chose a product or three. Most people and most companies spend their entire lives with one single bank as their trusted custodian. 

Fintech explosion

Credit Suisse

Tables turned