It’s what I call “the Mary Poppins moment.” In the movie, young Michael Banks, while visiting his father’s bank, screams “Give me back my money!” within earshot of other customers. Fear that the bank won’t give a customer his money spreads, and a run on the bank ensues. Now, we don’t live on Cherry Tree Lane (like the Banks family), but we do live in a world full of banking risks.
Fortunately, bank runs don’t happen that often. But when they do, fear can spread like contagion. Following the collapse of Silicon Valley Bank, Signature Bank, and Credit Suisse, we took the pulse of consumers in the US, the UK, and France on how they felt about the safety of their banks and deposits. We asked about dependability, modes of withdrawing money during a run, and the notion of “too big to fail,” among other things. The results aren’t pretty:
- Consumers are concerned about the dependability of their bank. Among US online consumers, 40% agreed with the statement, “Recent problems with banks have made me more concerned that my bank will not be there for me when I need it.” French online consumers had similar sentiments: 38% of them agreed. But only 28% of UK online consumers felt the same. Though backstops and standards exist to protect depositors (insurance, capital and liquidity, and regulation), it’s clear that a run can leave consumers concerned about the dependability of their bank.
- A run can still lead to lines of consumers in your branches. Though digital channels can and do hasten a run on a bank, consumers will still show up in person for their money. More than 30% of each of US, French, and UK online consumers would visit a local branch in the event of a run. Even deposit insurance and other mechanisms available to stem the outflow of funds have mixed receptivity among the consumers we surveyed.
- Large banks win out but not by much. Large depositories benefited recently from the weakness (perceived or otherwise) of smaller rivals, but they should take note that depositors aren’t entirely convinced of the safety of any bank. Nearly 40% of each of the three groups we surveyed agreed with the statement that “Larger banks are inherently safer than smaller/regional banks.” Those percentages should give the “too big to fail” banks some comfort but are by no means a ringing endorsement of larger banks.
Numerous mechanisms have been in place for decades to protect bank depositors and presumably to burnish the reputation of the banks themselves: deposit insurance, compensation and guarantee schemes, capital and liquidity requirements, and layers of regulation. Yet regulators are not clairvoyant, and consumers remain on edge about their deposits when news turns bad.
At the end of “Mary Poppins,” Michael keeps his money and eventually gives it to his father, who learns a valuable lesson in parenting. The long-term lessons from this recent spate of bank failures remain unclear. But we do know this: A run on an adjacent bank has profound consequences for even sound institutions; customers are ambivalent about the effectiveness of deposit safeguards; and the mechanisms available to keep depositors calm (and carrying on) may not be the panacea needed to retain the status quo.
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