In recent years, many financial experts have stated that traditional banking is far more stable than crypto, as most people are believed to put their money into a bank account at a prominent bank and leave it there indefinitely. This stability has been touted as something crypto could never offer, as rapid withdrawals are commonplace.
However, recent reports have shown that even traditional banks are not immune to rapid deposit runs. This revelation has prompted many to consider the stability of banks in the modern era, and how they compare to crypto.
Sticky Deposits: The Foundation Of Traditional Banking
Banks, traditionally, have been built on the idea that most customer deposits are “sticky”. This term has historically referred to the fact that deposits are seen as a form of long-term funding, even though they can be withdrawn at any point. This idea has been the foundational support for banks, allowing them to lend money out to various borrowers, from home buyers and car buyers to credit card users and real estate developers. Banks can afford to do this because they have the expectation that most people will leave their funds in the bank for the long term, and so the banks know that they can depend on these funds to lend them out.
The Potential For Rapid Deposit Runs
The recent failures at Credit Suisse, Silicon Valley Bank (SVB), and Signature Bank have shown that even traditional banks are not immune to rapid deposit runs. These deposit runs can be triggered at any moment, and have far-reaching consequences for banks and customers alike. Customers reportedly withdrew $42 billion from SVB in a single day in March, prompting many to question the future of banking as we know it.
Comparing Banks to Crypto
As those in the financial industry try to come to terms with this new era of instant transfers and rapid deposit runs, many are beginning to compare traditional organizations to crypto. While banks are still supported by the government with deposit insurance and lender-of-last-resort borrowing facilities, the speed of deposit runs has highlighted just how easy it is to move money from one account to another in the modern era. The speed of digital runs on banks is very different from what we have seen in the past. This new level of swiftness in the banking industry could represent one of the most fundamental shifts in the industry’s history.
Is Crypto Now More Stable Than Traditional Banking?
Many in the crypto industry believe that rapid withdrawals are not a negative, but simply a byproduct of the speed and efficiency that comes with digital assets. This argument now holds more weight than ever before, with traditional banking also seeing rapid withdrawals amid times of trouble. With the speed of digital transfers only set to increase in the future, it may become normal to have instant access to one’s funds at any given time. As banks struggle to rebuild customer trust and scramble to shore up their finances, many may begin to see crypto as the more “stable” option, particularly as they become familiar with how it works.
As the dust continues to settle on one of the most turbulent periods in recent banking history, it remains to be seen how traditional organizations will adapt to the challenges presented by the digital era. With the stability of traditional banking now in question, and crypto becoming an increasingly attractive option for investors, the future of banking is uncertain. However, one thing is clear: the speed of digital transfers will continue to dominate the conversation around banking stability in the years to come.
