WisdomTree Minds on the Markets
Minds on the Markets
Minds on the Markets
Contending With the “Bank Walk”
March 20, 2023
The speed with which an observation moves from a useful insight to a ubiquitous Wall Street cliché has accelerated in recent years. The most recent one is the notion that bank runs can come fast and furious in this cycle because of social media. But we’re not so sure this one should be blamed on Twitter. The dopamine-inducing machines that are in our pockets didn’t exist when It’s a Wonderful Life, the Christmas movie that featured a bank run, hit the box office in 1947. Back then, people tended to be out running errands the old-fashioned way: by seeing real-life people and holding conversations with them. If you were on your way to the post office on Main Street in the morning and saw a line outside a bank branch, you could very well be in that line with a demand to empty your own account by lunch.
The other thing about social media and bank runs: it’s not like we were drawing hieroglyphics on cave walls when the likes of Wachovia and IndyMac were collapsing in 2008. In the office, we all were glued to Bloomberg Terminals, data at the ready. During that crisis, one monitor screen may have featured AIG’s credit default swaps, the other an instant message about Bear Stearns’ busted hedge funds. For weekend warriors, CNBC.com and ZeroHedge were just as easily accessible then as Twitter is today.
Now that the FDIC has offered a full backstop to all depositors of any size at Silicon Valley Bank and Signature Bank, the market may need to come to terms with a new concept that is less fearful than a run but painful nonetheless: a “bank walk.”
A bank walk is when deposits flow out of savings and checking accounts like a steady stream, not out of fear but self-interest.
Consider that for years, we all had to roll our eyes at the 0.01% rate on our savings and checking accounts. Because the ATM for our primary bank was next to our favorite coffee shop—or because of stasis—individuals and small businesses simply put up with not being paid on their deposits. Even if you did decide to make a move, a so-called “high-yield savings account” was a joke, maybe paying 1% as a teaser rate.
Moving bank accounts is one of those things like shopping for auto insurance or rolling over an old 401(k). Financial in nature and another item on the “To Do” list, it’s something that you promise yourself you will get around to doing next week. No, the week after. Okay, the week after that. Or never.
Recently, a handful of T-bill yields pushed north of 5%. When the opportunity cost of 0.01% was not getting 1% from the aforementioned “high-yield” savings accounts, moving bank relationships was a “do it next week” kind of item. But at 5% on T-bills, enter the bank walk. On the kind of deposit that is common in a middle class home’s bank account, $10,000, inaction means leaving $400–$500 a year on the table. As rates rose, “I’ll do this next week” turned into “I’ve been putting this off. I really need to get this task done now.”
Because of the bank walk, commercial bank deposits fell 2.2% over the most recent 26 weeks of reported data, which the FDIC has only revealed through the opening days of March. It doesn’t sound like much, but that is the largest outflow in history; second place is the 1.5% fall over a half year through early 1994. We do not yet know how much the decline accelerated as March progressed, but soon we will be privy to the effect of the runs on Silicon Valley Bank and Signature Bank. Critically, the market is coming to realize that many individuals and businesses are yet to check “next week’s” task off their To Do lists. It’s the bank walk into short-dated Treasuries.
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