Rapid Bank unveils deposits that are now also magical internet money

One thing that has differentiated traditional banking from crypto, in the eyes of many financial experts, is stability. There is a strong belief that most people who deposit money in a well-known bank usually leave it there, indefinitely, be it for convenience, satisfaction, relationships, laziness and many other things.

That level of permanence or loyalty is unlikely to prevail in crypto, as evidenced by the rapid withdrawal of deposits from digital asset companies Celsius Network, FTX and Voyager Digital in 2022 as soon as there was a whiff of trouble, or even that. other depositors may jump ship.

But the recent failures of Credit Suisse, Silicon Valley Bank (SVB) and Signature Bank have shown the potential for surprisingly fast deposits in traditional banks as well. It was an unpleasant surprise for industry executives and regulators, a testament to how mainstream (and easy) online banking has become, with split-second updates on social media fueling rumors and adding to the fragility.

So if customers anywhere in the world with an internet connection can instantly move their money from one bank to another, it begs the question how different that traditional setup is compared to the notoriously volatile crypto, barring a supposed government backstop.

None other than Federal Reserve Chairman Jerome Powell on Wednesday noted a press conference that the deposit at SVB was “faster than the historical record suggests”.

“The run rate is a lot different than what we’ve seen in the past,” Powell said.

Banks rely on the idea that most customer deposits are “sticky,” a form of long-term funding, even when technically they can be redeemed on demand. Given the expectation that the funds will not be withdrawn all at once, banks then lend the money to home borrowers, car buyers, credit card users, companies and real estate developers, or sometimes invest the money for the long term. bonds that may not be paid for years.

The dynamic has monstrous long-term implications for the traditional economy and financial system. If banks cannot depend on deposit funding, they may think twice about making long-term loans. Customers: is reported withdrew $42 billion from SVB in one day on March 9, the Wall Street Journal reported.

Crypto’s reputation may benefit, however, or at least not seem so bad in comparison, if fast-moving internet money is increasingly seen as the norm rather than an unwanted feature of nascent, blockchain-based finance.

“It’s a new world with very fast digital startups in banking,” said Lex Sokolin, chief cryptoeconomy officer at ConsenSys.

Banking experts say the introduction of high-speed deposits could be one of the most fundamental changes in the industry’s history. Of course, online banking has been around for a long time, but online banking has never been more popular during a banking panic.

In the age of the Internet, it only takes a few clicks and a few seconds to transfer deposits from one bank account to another. When in doubt that your money is not safe, simply park it in another online bank account.

Rumors, or even disturbing, confirmed facts, spread quickly on Twitter, politicians press releases or online news programs. When people decide to play it safe instead of apologizing, bank runs can begin within days or hours.

The Federal Reserve, the Treasury Department and the Federal Deposit Insurance Corporation (FDIC) have announced: joint statement on March 13 that all deposit accounts at both Silicon Valley Bank and Signature Bank will be guaranteed.

“Despite the central bank’s aggressive actions, confidence in the banking system, particularly in small and mid-sized regional banks, remains fragile as many uncertainties and concerns remain,” Nationwide Chief Economist Kathy Bostiancic wrote in a note to Wednesday’s Federal Open- in the precedent entry. Market commission session.

The phrases “lack of confidence” and “uncertainty” seem very familiar to crypto traders and have been used by government officials for a long time. the risk of “runs”. as the main reason why cryptos, particularly stablecoins, are not a safe option for parking savings.

Cryptocurrencies have been on the rise since what some people call the ‘banking crisis’. Bitcoin (BTC) hit $28,000 for the first time in nine months on Monday.

Already, crypto-friendly commentators are starting to revive the narrative that bitcoin could be a safe haven, say, if the Fed needs to print more money to prop up the banking system. Asked about the Fed’s new emergency lending programs for banks created by the failures of SVB and Signature, Powell told a news conference that “it’s designed to strengthen confidence in the banking system.”

With the wounds of 2022 still fresh, it’s probably hard to argue that crypto is a safe haven at this point, but it’s not crazy to expect that perceptions of the stability of the banking system could be due for an overhaul similar to the crypto industry in 2022. .

513 pages”Economic Report of the PresidentPublished Monday by the White House Council of Economic Advisers, it devoted nearly an entire page to describing how the government’s financial safety net helped weather the 1907 banking panic that led to the bailout of financier JP Morgan.

“Fast forward 100 years and proponents of digital assets are now seeking to create a decentralized financial system without relying on governments and their regulatory frameworks,” the report said. “Crypto backers were relearning the lessons of previous financial crises the hard way.”

The messy and rapid liquidation of several highly-supervised banks over the past month suggests that traditional finance executives and regulators will also have to relearn how to do it.

“A fragile banking system is likely to encourage investors, especially the younger generation, to keep at least some of their wealth in an ‘insurance asset’ like bitcoin,” said Noel Acheson, former head of research at CoinDesk and Genesis Trading.