In this post I want to discuss how digital banking and social media make our banking system more fragile than ever.
Now, last year we saw with the collapse of Silicon Valley Bank and signature and how digital banking and social media can really speed up the process of bank runs.
See, No longer do I need to go stand in line at the bank, like during the Great Depression, or wait till I am off work to head down there. I can simply move my money from my smartphone. And while it’s true there are restrictions and limits on this for some accounts, with enough people pulling money a bank run can easily start much more quickly. Hence, our banking system is fragile.
Last year we saw highlights of people outside SVB banks banging on the door so it’s true that people will flood to the physical location, but the beginning stages will be online and at ATMs. With digital banking, that’s how it begins.
Social media can easily hurt the banking system.
For example, let’s talk about the power of rumors. And remember in the age of social media, a rumor can sometimes be much more powerful than facts. All it might take is a rumor and the rumor spreading like wildfire on social media. Then, the widespread panic begins, a news outlet picks it up and the situation gets out of control.
And if more bank runs happen, we can expect everyday people to become more scared and lose confidence. And that’s all that needs to happen, a continued decline in confidence.
Many believe that a Central Bank Digital Currency (CBDC) will be implemented (learn more about CBDCs here).
And what’s worse for all of us is that the money will flow to the mega banks and in the long run the average Joe and Jane get hurt.
