By Owen Halberg
Bank runs used to be noisy affairs. Crowds lined up outside branches, TV cameras captured the panic, and policymakers scrambled to reassure depositors. In the digital age, the panic still comes—but silently, with a few taps on a smartphone. The result is faster, less visible, and potentially more destabilizing than the bank runs of the past.
A Run Without a Line
In March 2023, Silicon Valley Bank collapsed after depositors withdrew $42 billion in a single day—nearly a quarter of its deposits. No lines formed outside branches; the withdrawals happened through apps and wire transfers. What once took days now unfolds in hours. Central bankers call this “accelerated liquidity risk.”
The mechanics are simple. Digital banking reduces friction. Depositors can move funds instantly, often in response to online rumors spreading at viral speed. Social media accelerates contagion, as tweets and group chats amplify fear. By the time regulators intervene, the outflow may already be irreversible.
The Central Bank’s Dilemma
Traditional tools for managing bank runs were built for slower times. Deposit insurance calmed savers by promising payouts, but confidence often held long enough for regulators to act. Emergency liquidity facilities gave banks breathing room. In a digital run, however, speed outpaces assurance. By the time a press release lands, billions may have fled.
This leaves central banks with a dilemma: expand backstops to reassure depositors preemptively, or risk intervening too late. Either option carries costs. Preemptive guarantees can fuel moral hazard, encouraging risky behavior by banks. Delayed action risks systemic collapse.
Global Ripples
The risk is not confined to U.S. mid-sized banks. In Europe, regulators fear that online panic could destabilize smaller lenders with concentrated deposits. Emerging markets, where mobile banking leapfrogged traditional systems, face their own vulnerabilities: financial inclusion has expanded, but so has exposure to sudden, coordinated withdrawals.
The International Monetary Fund has warned that “digital-era bank runs” could transmit shocks across borders more easily than before. A rumor in one market can leap instantly into another, especially when deposits are held in multinational fintech platforms.
Rethinking Stability
Some solutions are emerging. Central banks are exploring real-time monitoring of deposits, giving regulators an earlier warning of stress. Proposals for “liquidity stress tests” mirror the capital stress tests developed after 2008, but focused on how fast deposits could vanish. Others advocate for circuit breakers—temporary withdrawal limits, much like stock market halts during crashes.
Each carries trade-offs. Limits on withdrawals may preserve stability but undermine trust. Transparency can reassure investors but also reveal fragility. The central challenge remains: how to slow panic in a system designed for speed.
The Future of Runs
The lesson of the digital bank run is not that technology created new risks, but that it accelerated old ones. Fear has always been contagious. Now, it moves at broadband speed. The quiet runs of the digital age may never produce the iconic images of Depression-era lines outside banks. But for policymakers, they are louder than ever—an alarm bell that crisis management must adapt to a faster world.
