The Legend of the Smartphone Bank Run
By The Editorial Board April 27, 2023 4:15 pm ET Deutsche Bank headquarters Frankfurt, Germany Photo: daniel roland/Agence France-Presse/Getty Images ‘The smartphones did it!” has become a refrain from financial regulators during the recent bank panics. The theory is that online banking allows jumpy depositors and investors to jump faster and further than before, leading to bank runs by the nanosecond. Thank , then, for shedding new light on this phenomenon—by not having suffered a bank run. The bank on Thursday reported higher profit in the first three months of the year, largely thanks to rising interest rates. It appears that a moderate outflow of deposits hasn’t become a run of the sort that doomed Credit Suisse and Silicon Valley Bank (SVB) in March. Deuts
Deutsche Bank headquarters Frankfurt, Germany
Photo: daniel roland/Agence France-Presse/Getty Images
‘The smartphones did it!” has become a refrain from financial regulators during the recent bank panics. The theory is that online banking allows jumpy depositors and investors to jump faster and further than before, leading to bank runs by the nanosecond. Thank , then, for shedding new light on this phenomenon—by not having suffered a bank run.
The bank on Thursday reported higher profit in the first three months of the year, largely thanks to rising interest rates. It appears that a moderate outflow of deposits hasn’t become a run of the sort that doomed Credit Suisse and Silicon Valley Bank (SVB) in March. Deutsche says the outflow happened in part as customers switched deposits into higher-yielding investments, and that the flow had started to reverse in April, after the quarter closed.
The timing is notable given that, for roughly one day in March, investors had worried Deutsche might be the next domino in a banking panic that started with SVB. The German institution’s share price plunged less than a week after the Swiss government orchestrated a fire sale of ailing Credit Suisse, and the cost of insuring Deutsche’s debt against default surged. Jittery markets worried about which banks might run into trouble next.
If irrational, high-speed digital bank runs were to blame for recent turmoil, that might have done in Deutsche. But depositors and investors proved more discerning. The market decided to credit Deutsche’s current turnaround plan and stable management, and no run materialized. It certainly helped that Deutsche is perceived as too-big-to-fail, although that hadn’t spared Credit Suisse.
We come neither to praise nor condemn any bank, and Deutsche in particular faces the constant challenge of reassuring investors and depositors after a history of bad management in recent decades. The point is to remind regulators that markets are discerning—even when new technology is involved.
Over the past month, central bankers and government officials have raised alarms about the financial risks supposedly posed by smartphone banking, which allows digital runs to develop in the blink of an eye. For now at least, it’s more accurate to say that quick-fire digital banking is focusing its faster and harsher market discipline on banks (and their regulators) that deserve it. This is a good development, unless you’re a reckless bank manager or a derelict regulator.
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