Small / Regional Banking Crisis & SVB Update
Looks like the catastrophe is spreading to CNN & elsewhere.
Bank runs are self-feeding panics and self-feeding crises.
One person (or institution) tells another, who tells another, who tells another to go withdraw all their money from an institution, and under pressure — the institution buckles. Because it doesn’t have all your money.
When you put $100 into a bank, it then takes part of (the vast majority, usually) that money and makes loans against it. The banks holds onto, say, $10 of yours. This is called bank reserves.
When everyone tries to withdraw their money at the same time, the bank can be overwhelmed — but is supposed to keep reserves on hand so it can fulfill obligations to its depositors.
When enough people overwhelm the system with too many redemptions at the same time — it’s a bank run. Bank runs can quickly turn into bank panics.
At this point, it looks like the smaller, regional banks are being hit first — with larger banks encouraging clients of smaller banks to bring them money.
Greedy bankers gonna be greedy bankers.