For the past three weeks, Bloomberg News feeds have me glued as I watched the breakneck speed decline of name-brand global banks equivalent to a frightened wildebeest stampede in the Serengeti, which is, undoubtedly, quick, and destructive with loud, thundering vibrations.

In years gone by it would have been inconceivable to think a bank with assets of US$1.4 trillion could crash. But that is passé considering the recent fate of Credit Suisse, a titan for nearly 170 years, yet gone several days ago in an emergency sale to UBS for a paltry US$3.3 billion — a 90 per cent loss of its value within one year.

However, Credit Suisse was not the only bank too big to fail. As we saw, Silver Gate, Signature, and Silicon Valley Banks also collapsed in the epitome of what I call “March mayhem”. Silicon Valley lost US$42 billion of their deposits within 24 hours as customers rushed to transfer their money out of the bank digitally. Silicon was the sixteenth largest bank in the United States with US$206 billion in assets.

Listed as the nineteenth largest bank in the US, Signature Bank — in an extraordinary sequence of events — on March 10, 2023, stood helplessly as its customers withdrew massive amounts, leading to the Federal Deposit Insurance Corporation (FDIC) shutting down the bank two days later.

These banks’ failures were due mainly to:

(1) a ‘run’ on them by anxious customers to remove funds as a result of their lion’s share deposits being over the US$250,000 FDIC limit;

(2) a mismatch of the banks investments in longer-term securities whose values decreased significantly with the speed of increased interest rates by the US Federal Reserve;

(3) the direct impact of digital technologies to the ease of real-time financial transfers; and

(4) the immediate dissemination of information by social media platforms creating viral anxiety reactions.

Digital technologies: Kryptonite of modern banking?

Remember the old saying, “Bad news travels fast”? Well, today, anxiety and fright travel instantaneously! No matter which part of the world or time zone you are in, creating an automatic physiological response to perceived stressful events is possible within the palm of your hand. Just one social media post or report can send a herd of people into a frenzy to ‘fight or flee’.

So, what was the tipping point for these banks today?

In the case of Silicon, the bank announced that it sold US$21 billion worth of its securities at a roughly US$1.8 billion loss and needed to urgently raise US$2.25 billion to meet clients’ withdrawal needs and fund new lending.

That announcement sent shock waves throughout the financial markets through real-time mainstream and digital media reports. Consequently, Silicon Valley stock prices plunged by 60 per cent within one day — a loss of more than US$80 billion in bank shares globally — and an immediate wave of withdrawals from venture capitalists and other depositors. The FDIC had to urgently step in and guarantee all depositors in order to contain their panic and stop the hemorrhaging. This intervention may cost the FDIC over US$23 billion, either passed on to other banks in higher fees or to the American taxpayers.

In our modern financial world, when someone deposits money into a bank approximately eight to 12 per cent is available immediately in cash; this is backed either with cash at the respective bank or by deposits at the central bank. Therefore, the bank in question has to invest 88 to 92 per cent elsewhere to earn a higher return than what they are paying the customers with deposits.

Therefore, if there is a short-term demand for cash, the bank would have to liquidate its investments to generate the money to give back to its customers. For Silicon, the value of their long-term investments fatally depreciated based on the rapid increases in the FED’s deposit rate. This reported loss critically eroded the confidence of its depositors with immediacy. Then the panic spread to other banks deemed similarly exposed with a long-term versus short-term investment exposure and an over-reliance on large depositors making up their asset base.

Here at home, even though we do not have a similar confidence crisis now, we must understand how panic with digital technologies can negatively impact the fundamentals of our financial system. Over the last 15 months the Bank of Jamaica has similarly increased the central bank interest rates several times. We’ve also witnessed internal breaches and other regulatory failures within some of our financial institutions which have led to the loss of customers’ money. Most notable is the major scandal of insolvency for the 50-year-old brokerage firm Stocks and Securities Limited (SSL).

Recently, the Government announced that it would wind up SSL, as it did not have enough funds to pay its debts, leaving many of its customers without answers about their investments. Furthermore, the delay and absence of any information on what really occurred at SSL will continue to reduce investor confidence daily in the Jamaican banking and investment system.

With US$4.03 billion or 40 per cent of our Jamaican bank deposits being held in US dollars and other foreign currencies, we must be vigilant, as banks transfers are only a cellphone click away into US bank accounts by depositors.

We often hear complaints about the slow rate of approval by the Bank of Jamaica for new banking licenses or digital money. One factor analysts have pointed to in the failure of the US banks is that the country is ‘overbanked’. For example, North Dakota ,one of the smallest states in the US, has more banks than Canada. So, in times like these, we can appreciate the prudent and conservative approaches of the Bank of Jamaica to be in our best interest.

We live in a world of digital technologies and social media. Yet, if there is anything we must learn from the US’s recent bank crashes, there is no longer any entity that is too big to fail, and the speed at which they can implode is frightening.

Lisa Hanna is Member of Parliament for St Ann South Eastern, People’s National Party spokesperson on foreign affairs and foreign trade, and a former Cabinet member.