By Doug French

One thing’s for certain: with point and click banking bank runs will be a lot quicker than they used to be. They’ll be done remotely, too, so no Jimmy Stewart-like character will be able to give a speech persuading the bank’s depositors to leave their money in the bank. From Doug French at mises.org:

Caitlin Long tweeted over the July 4 weekend, “BIG NEWS for #fintech! A sixth US state—Idaho—is willing to charter uninsured, non-lending, 100% reserve banks that are eligible for Fed master accounts (the other states are CT, ME, NE, VT & WY). This trend could turn the ‘bank-as-a-service’ (#BaaS) model on its head!!!!!”

As Long explained to Ash Bennington on Real Vision, bankers are

playing this three-card monte game of, well, I’ll tell everybody that they can have their deposits back on demand. But I only keep seven cents of the deposits in cash. So, if more than 7 percent of the demand deposits get withdrawn in a short period of time, I’m in trouble. And that’s exactly what happened to all the banks that failed.

Responding to Long’s comments, Bennington made the point that today’s bank runs are not your grandpa’s bank runs:

I mean this is a really fundamental critique that you’ve just leveled right now against fractional reserve banking, against the current structure of liquidity transformation, as it’s called in the business. This idea that basically the banking system that we have is no longer fit or suited for the twenty-first century. That is a profound critique of where we are today.

Depositors are moving money to the large too-big-to-fail banks, but as Long explains:

The deposits at the cash at the large banks is only about ten cents. So, the delta, if you will, between the smaller banks is seven cents versus ten cents at the larger banks. You’re not getting that much more safety, because the larger banks aren’t sitting on that much more cash than the smaller banks are. It’s fundamentally an issue of fractional reserve banking to your point, and I think this is just going to continue to dodge, to haunt the regulators in the coming years.

She believes regulators will “be playing whack-a-mole against this because everybody has an expectation of internet speed user experience. And as they try to push everybody back to a bank branch, talk to a twenty-year-old—a twenty-year-old has never been in a bank branch and never written a check.”

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