If the bank is being mismanaged, it should still collapse. The FDIC steps in, bankruptcy courts are really good at distributing funds or someone buys the assets and the debt & underwrites it & boots it all up again, the original bank dies and it’s operators suffer reputational damage, and everyone learns a bit about banks, insurance premiums get adjusted and life goes on. If the bank was so bad at its job, then this should happen. It could even have happened on Friday, if people came to an agreement and got enough money to survive out before accelerating withdrawals.
I am talking about the period just prior to when the bank ceases normal operation, when everyone is panicking and deciding whether to withdraw everything. People in bank runs are judging the behaviour of other participants. If you think everyone else is going to do that, then yes, it’s rational to do that ASAP. If you have all day to talk about it, and everyone relevant is in the room, then if possible you don’t do that. Because bank runs are bad! You might try to soften the blow, even out the damage, ensure nobody’s left behind, and then get the bank to go down gracefully. The people here acted as if they thought the bank run would go on until all the money was drained, or worse, as if bankruptcy meant getting pennies on the dollar. Of course that wasn’t going to happen. Maybe 20% got out, which amplified losses slightly for the slower reactors. Was the risk of a few percent worth causing a panic and threatening a larger one? No!
But no, it had to be run run run, full speed, and then threaten the government with more panic if they didn’t bail it out. This path is greedy and needy, and it will not make big tech any less of a pariah in the American psyche.
PS, I think much of this irrational behaviour may be attributable to the 250k insurance cap. Everyone sees that figure and sees the absolute worst case scenario, blinded to the actual likely amount they’ll get back from someone selling off the assets. When you have $10 million in there it looks really bad even if it’s really fine. If you have to force people to pay for 100% insurance coverage just so they don’t all act like idiots in the face of a run, then maybe that is worth it.
I am talking about the period just prior to when the bank ceases normal operation, when everyone is panicking and deciding whether to withdraw everything. People in bank runs are judging the behaviour of other participants. If you think everyone else is going to do that, then yes, it’s rational to do that ASAP. If you have all day to talk about it, and everyone relevant is in the room, then if possible you don’t do that. Because bank runs are bad! You might try to soften the blow, even out the damage, ensure nobody’s left behind, and then get the bank to go down gracefully. The people here acted as if they thought the bank run would go on until all the money was drained, or worse, as if bankruptcy meant getting pennies on the dollar. Of course that wasn’t going to happen. Maybe 20% got out, which amplified losses slightly for the slower reactors. Was the risk of a few percent worth causing a panic and threatening a larger one? No!
But no, it had to be run run run, full speed, and then threaten the government with more panic if they didn’t bail it out. This path is greedy and needy, and it will not make big tech any less of a pariah in the American psyche.
PS, I think much of this irrational behaviour may be attributable to the 250k insurance cap. Everyone sees that figure and sees the absolute worst case scenario, blinded to the actual likely amount they’ll get back from someone selling off the assets. When you have $10 million in there it looks really bad even if it’s really fine. If you have to force people to pay for 100% insurance coverage just so they don’t all act like idiots in the face of a run, then maybe that is worth it.