Bank failures add another dose of anxiety to uncertain economy
Viral terms like "bank run" do not help when we're already looking at high prices, rising interest rates and big layoffs in tech.
Bank failures like what happened to Silicon Valley Bank and Signature don’t just hit their depositors hard. They rattle everyone who hears about them. Consumers, workers and small-business owners all start to worry more about the financial system and the economy overall.
Plus, the round-the-clock news cycle, viral social media and email mass-marketing might make the situation worse. Folks who have no direct tie to SVB got emails over the weekend from vendors saying their money was frozen and asking recipients to essentially make purchases to help keep them afloat.
To be clear, this was already an economy that consumers didn’t have a whole lot of confidence in. Screaming headlines and email subject lines that say, “Bank Run!” and “Bank Failure!” wouldn’t be great for the consumer mindset in the best of times, and these times are anything but.
“There’s a lot of concern, a lot of anxiety out there,” said Chris Jackson who tracks consumer attitudes at Ipsos. “People have been sort of waiting for the other shoe to drop really since the pandemic began. They are very sensitive to shocks.”
And they’ve had plenty — soaring inflation and interest rates, tech layoffs and, now, suddenly regional banks are in trouble?
“Something like this, even though it has probably a relatively small actual impact on people, it could have a large impact on how they view the stability of the system,” Jackson said.
Reinforcing confidence in the system’s stability is the main goal of the government’s emergency actions, according to Sameer Samana at Wells Fargo.
“The [Federal Reserve] and related entities stepped in pretty quickly and pretty forcefully and pretty comprehensively. All depositors will be made whole,” Samana said. “That should hopefully ease any concerns about having access to money within the financial system.”
But people don’t always act rationally in the economy. If they get spooked, they could pull out “safe” deposits, precipitating more bank runs. That can happen a lot faster than it used to, said Santa Clara University behavioral finance professor Meir Statman.
“Businesspeople and depositors took out their money with clicks on their phones. So there’s really greater danger now that technology has advanced, letting people take money so fast,” he said.
Meanwhile, with all the talk of failing banks, government intervention, systemic risk, Statman said it sounds a lot like Great Recession times.
“It just brings back the bad memories of 2008 — that something is rickety, that something is going to come apart,” he explained. Which a lot of folks have already been feeling for years now.