> This is about as strong as a signal they could put out to stop a possible run.
Or a desperation signal, which might actually trigger a run. Like what happened with SVB.
The minute the CEO of SVB tried to reassure investors and told them everything would be ok if they just kept their deposits with them, immediately everyone started withdrawing.
Are the “safe” banks all putting out statements about the strength of their financials? They probably don’t feel like they really need to say anything. They feel safe, and that’s what keeps them safe. The moment they panic, their clients panic.
Another interpretation is that this is generally how the FDIC likes to do things: take over on Friday and reopen on Monday. Not sure that will happen in this case but the regulators get two days to prepare to reopen, which at least in recorded US history is seamless and without risk for retail depositors.
The 2-day shutdown is hence critical for the functioning of the financial system. Same for reporting earnings afterhours. Those calling for 24/7 trading are aloof of how entrenched systems need change management
matt levine has a tongue in cheek post from ... march 2020 (jesus, nearly 3 years ago to the day) that the markets should only be open for 30 minutes. do your research in the other 23 hours and 30 minutes, and trade in the small window.
Won’t we see “24hrs platforms to prepare trading” where transactions would get ranked and bet upon, until the auction-of-the-day, so, the platforms would act as the stock exchange and the actual auction be relegated to clerk approval of existing transactions?
The $42B that depositors pulled out of SVB has to go somewhere. FRB is the next-best-choice for many startups; they are also startup-friendly, have plenty of branches in Silicon Valley, make it pretty easy to open an account, many of these companies may already have accounts or banking relationships with them, etc.
This is one way in which the current crisis is self-limiting. It was brought about because SVB took lots of deposits when rates were low and invested them when bond prices were high, and now they don't have liquidity without taking a loss. But if banks take lots of deposits now and invest them when bond prices are low, their average cost goes down and it's much easier for them to satisfy customer withdrawals without taking large losses.
It becomes a crisis again if all the banks start failing at once, because then the likely consumer behavior is a flight to hard cash or crypto rather than another bank.
This is about as strong as a signal they could put out to stop a possible run.