24 March 2023 — When Trust Vanished in Days: The Bank Runs That Crossed Oceans

For most of the last three months, the mood had been improving. Inflation was falling. The Fed was slowing. Then, over a single weekend this month, Americans woke up to the second-largest bank failure in their country’s history; and within two weeks, the 167-year-old Credit Suisse had effectively ceased to exist. “Banking crisis” is back in the headlines for the first time in fifteen years.

Silicon Valley Bank had done what banks do: taken deposits and invested them in long-dated U.S. government bonds. After the Fed’s aggressive rate rises, those bonds had fallen in value. When its technology-startup clients began withdrawing faster than expected, SVB was forced to sell at a loss. On 9 March, depositors tried to pull $42 billion in 24 hours — a quarter of the bank’s balance sheet. On 10 March, regulators closed it.¹ Two days later, Signature Bank in New York followed.

On Sunday 12 March, regulators guaranteed every deposit at SVB and Signature, even those above the $250,000 insured limit. The Fed set up a new facility letting banks pledge their underwater bonds at face value for cash.² The panic stopped. But within days, nerves crossed the Atlantic. Credit Suisse, mired in years of scandal, saw its largest shareholder refuse more money. Customers began withdrawing 10 billion Swiss francs a day. Over the weekend of 18–19 March, Swiss authorities forced a deal: UBS took over Credit Suisse for just 3 billion Swiss francs, with the government backstopping up to 9 billion.³

Central banks are projecting calm while still fighting inflation. Fed Chair Powell raised rates another quarter-point on Wednesday, telling reporters “our banking system is sound and resilient,” while admitting the strains “are likely to result in tighter credit conditions.”⁴ ECB President Lagarde raised rates half a point the week before: “there is no trade-off between price stability and financial stability.”⁵ Bond markets, though, have reacted more dramatically: the two-year U.S. Treasury yield fell almost a full percentage point in three days — the biggest move since the 1987 crash.

Three lessons. Modern bank runs happen at internet speed — mobile apps and social media can empty a bank in a day. When a central bank tightens aggressively, something always breaks; this time it was a mid-sized bank that mismatched short-term deposits with long-term bonds. And the “safe” investment is not always safe: long-dated government bonds protect from default, not from losses when rates rise. The panic has receded, but this is the first visible crack in the machine built during the cheap-money years.