Banks should monitor social media for signs of a deposit rush

By RockedBuzz 2 Min Read

European regulators stepped up monitoring of banks’ liquidity after the collapse of US Silicon Valley Bank and Switzerland’s Credit Suisse in March final yr, as these occasions confirmed that banks can get into bother if prospects wish to withdraw their deposits on the identical time.

A journalist’s submit on social media in October 2022, wherein he wrote that “a main worldwide funding financial institution is on the brink”, is alleged to have performed a main function within the erosion of belief in Credit Suisse, resulting in a cost towards Credit Suisse. In the fourth quarter, prospects withdrew greater than 100 billion Swiss francs from the financial institution.

The pace with which prospects are withdrawing deposits has sparked debate world wide about whether or not establishments can face up to a sudden liquidity shock underneath present laws and whether or not new guidelines could also be wanted.

Banking sources instructed Reuters that the measures, which give an concept of ​​how a lot liquidity a financial institution can launch in a day, may very well be simpler than the present LCR, which assesses entry to liquidity over a 30-day interval. . An alternate of views on the LCR is subsequently presently happening among the many European regulatory authorities.

While early detection could not stop a financial institution failure, regulators and banks are attempting to keep away from being caught off guard by these occasions. The ECB spokesperson declined to touch upon the difficulty, however in its November monetary stability report, the central financial institution wrote that “Social media permits data to unfold extra shortly, however it might additionally set off or amplify shock results.”

Cover picture supply: Shutterstock

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