AvlGuy

The Risk Of A Run On The Banking System

Conveniently left unsaid:
Though the number of institutions involved in the S&L crisis dwarfs today's bank seizures, the number of institutions in existence and the scale in size makes for apples-to-oranges comparisons due to massive consolidation in the industry since 1989, as well as the recent inflated size of bank assets (now being viciously ‘corrected’ directly and indirectly by wholesale asset valuation deflation).

The Risk Of A Run On The Banking System

Conveniently left unasked:
What does the original and revised legislation governing FDIC Insurance say about the TIMELINESS of making insured depositors whole?
I give Sheila Blair credit, she wisely cherry picks when to bring it up: only when she has 'good news' trumpeting FDIC’s ‘quick response’ in orchestrating the weekend/overnight movement of insured accounts to new bank ownership during a bank seizure. Journalists don’t ask and she doesn’t offer that FDIC has no legislated or regulatory timeline to make any insured account whole.
Don’t ya love ‘Don’t Ask, Don’t Tell?
Behind the scenes, Ms. Blair’s wisely beefing up FDIC staff and systems. I suspect she's also timing seizures around the capacity/workload of staff, and not on a strict interpretation of whether a bank has become insolvent. After all, only the FDIC decides insolvency.
That all said, bank runs are a sociological mass reaction that can’t be forecasted using quantified measurements. It’s not like forecasting bank insolvencies based on data on reserves, etc. And the steps to cure the bank insolvency have no causal relation to steps to influence behavior of masses of people (depositors and the media) who could cascade a bank run.
10% of banks could be insolvent but if it’s kept quite til the FDIC can address them in a methodical manner, there will be no bank runs.
Flipside, a tipping point in technology-fueled rumors (like, hypothetically, via CalculatedRisk, the widely read blog, coupled with mega U-Tubing of images of bank-runs in effect) could case multiple bank runs in a rapid cascade even if only 1/100th of banks were actually insolvent.