Analysts recently identified a new liquidity movement phenomenon associated with a shift of deposits in pursuit of higher yields. This phenomenon, called bank walks, has critical implications on an economy’s stability and the availability of credit. The study, ‘Destabilizing Digital Bank Walks’, explains that digital banking has caused deposits to become loose and instead of relying on banks, the funds may move around the financial system freely. With a constant outflow of funds, banks may experience losses due to the early sale of treasuries before maturity and eventually face default. Furthermore, the siphoning of funds may lead to a credit crunch, stifling investment opportunities. This can be severe for small and medium-size businesses who have limited access to funds and market resources. Jim Bianco, president of Bianco Research, said that a forthcoming interest rate decision by the Federal Reserve could spark a ‘bank powerwalk’ and be particularly pernicious for small companies. This is because the majority of the workforce depends on these businesses, which could cause a disruption to their operations. It’s important to note that previous anticipation of such a shift has already been observed as recent outflows from banks is already more than $2 trillion USD. Regulators should be mindful of the potential outcomes at hand and actively watch for any signs of ‘bank walks’ emerging.
Jaxon Chavez
- 2023-04-11
Understanding Digital Bank Walks and Their Critical Implications
A study describes the potential impacts of digital bank walks, as deposits become loose and funds move freely. The outflow of funds could result in bank losses and a credit crunch, particularly detrimental to small and medium-size businesses. Federal Reserve’s forthcoming rate decision may spark a ‘bank powerwalk’.
