If that was true, then every bank every day would see runs on their holdings.
Obviously that doesn't happen, because most traditional banks have larger institutional customers who understand that the market-to-market value on bonds might dip a bit, but that as long as the bank is able to negotiation loans or raise capital to provide needed liquidity then it's not a big issue. You don't see runs on traditional banks like this, because in the traditional banking sector people pick up the phone and talk to each other instead of taking to twitter and screaming doom and destruction because they read a blog post that they didn't understand but which said something about market-to-market insolvent and sounded scary.
You don't see runs on banks because people believe their money is safe. Full stop. As soon as that belief is broken, a run is guaranteed. This is why we have deposit insurance, and why the fed just effectively made it unlimited. If they hadn't, every small bank in the country would now be experiencing a run, including those in "the traditional banking sector".
What changed late last week is not any fundamental of the economy or banking sector, but people's belief in the safety of banks.
If that was true, then every bank every day would see runs on their holdings. Obviously that doesn't happen, because most traditional banks have larger institutional customers who understand that the market-to-market value on bonds might dip a bit, but that as long as the bank is able to negotiation loans or raise capital to provide needed liquidity then it's not a big issue. You don't see runs on traditional banks like this, because in the traditional banking sector people pick up the phone and talk to each other instead of taking to twitter and screaming doom and destruction because they read a blog post that they didn't understand but which said something about market-to-market insolvent and sounded scary.