WEBVTT 00:00:00.000 --> 00:00:02.839 You know the scene? It's a staple of dramatic 00:00:02.839 --> 00:00:06.360 cinema. Oh, yeah. The cobblestone street, the 00:00:06.360 --> 00:00:09.099 towering granite facade of some huge financial 00:00:09.099 --> 00:00:13.179 institution, and just the sheer panic visible 00:00:13.179 --> 00:00:15.539 in the crowds. Right. People are shouting. Their 00:00:15.539 --> 00:00:17.679 faces are just etched with fear. They're clutching 00:00:17.679 --> 00:00:19.899 their bank books like life rafts. And there's 00:00:19.899 --> 00:00:22.219 this cue that just snakes out the door and around 00:00:22.219 --> 00:00:25.120 the corner. And that line, that chaotic line, 00:00:25.179 --> 00:00:27.440 it's not just about money, is it? No. It's the 00:00:27.440 --> 00:00:31.079 physical manifestation. Of trust being revoked 00:00:31.079 --> 00:00:34.700 institution by institution. It's fear made visible. 00:00:34.820 --> 00:00:37.539 That image perfectly encapsulates the bank run. 00:00:37.600 --> 00:00:39.420 It's this phenomenon that has played out for 00:00:39.420 --> 00:00:42.000 centuries. It's where cold economic reality just 00:00:42.000 --> 00:00:46.039 slams headlong into mass human psychology. Yeah. 00:00:46.119 --> 00:00:48.810 And it proves that fear is. maybe the single 00:00:48.810 --> 00:00:50.969 greatest destabilizing force in finance. OK, 00:00:51.049 --> 00:00:53.049 so let's unpack this because we've synthesized 00:00:53.049 --> 00:00:55.310 a fantastic, I mean, a really detailed body of 00:00:55.310 --> 00:00:57.310 sources that breaks down this critical concept. 00:00:57.409 --> 00:00:59.570 We're starting from the underlying architecture 00:00:59.570 --> 00:01:02.630 of fractional reserve banking that makes banks, 00:01:02.789 --> 00:01:05.129 well, inherently vulnerable. And we're going 00:01:05.129 --> 00:01:08.030 all the way up to the very modern lightning fast 00:01:08.030 --> 00:01:10.790 threats posed by cyber failures. And our mission 00:01:10.790 --> 00:01:13.280 today. is to go beyond that simple definition. 00:01:13.459 --> 00:01:16.219 We need to understand not just what a mass withdrawal 00:01:16.219 --> 00:01:20.099 event is, but why. Why the belief that a bank 00:01:20.099 --> 00:01:23.280 might fail is so uniquely capable of becoming 00:01:23.280 --> 00:01:25.920 a self -fulfilling prophecy. We'll trace the 00:01:25.920 --> 00:01:28.329 history. We'll delve deep into the core economic 00:01:28.329 --> 00:01:31.189 models that explain the panic. We'll quantify 00:01:31.189 --> 00:01:34.170 the massive societal costs involved and see how 00:01:34.170 --> 00:01:36.450 the digital age is completely redefining the 00:01:36.450 --> 00:01:38.829 speed and the nature of failure. And the core 00:01:38.829 --> 00:01:41.489 definition is where that inherent fragility begins. 00:01:41.849 --> 00:01:45.310 It is. A bank run happens when many clients all 00:01:45.310 --> 00:01:47.709 at once withdraw cash from their deposit accounts 00:01:47.709 --> 00:01:50.590 because they suspect the institution is or might 00:01:50.590 --> 00:01:53.370 soon become insolvent. And the action itself 00:01:53.370 --> 00:01:56.200 is fundamentally enabled by the fraction. reserve 00:01:56.200 --> 00:01:58.500 banking system. Yeah. That's the critical starting 00:01:58.500 --> 00:02:01.000 point. Explain that for us. Well, in the system, 00:02:01.159 --> 00:02:03.980 the bank only keeps a fraction, a really, really 00:02:03.980 --> 00:02:06.700 small proportion of its deposits as physical 00:02:06.700 --> 00:02:09.340 cash reserves. OK. The rest is lent out. It's 00:02:09.340 --> 00:02:11.960 working in the economy. So if a sufficient number 00:02:11.960 --> 00:02:14.180 of depositors demand their money back at the 00:02:14.180 --> 00:02:17.400 same time, the bank simply cannot meet those 00:02:17.400 --> 00:02:19.759 demands from its reserves. It's not there. It's 00:02:19.759 --> 00:02:22.180 not there. It forces them to try and liquidate 00:02:22.180 --> 00:02:25.840 long -term assets, sell off loans, and they have 00:02:25.840 --> 00:02:28.259 to do it at fire sale prices. And that triggers 00:02:28.259 --> 00:02:30.400 the very failure they were afraid of. Exactly. 00:02:30.460 --> 00:02:32.860 Now, if the funds are just transferred electronically 00:02:32.860 --> 00:02:36.740 to another safer bank, the event is often characterized 00:02:36.740 --> 00:02:39.039 as capital flight. Got it. But the effect on 00:02:39.039 --> 00:02:41.060 the failing institution is, at the end of the 00:02:41.060 --> 00:02:44.400 day, the same. A severe, sudden liquidity crisis. 00:02:44.680 --> 00:02:47.099 When we read about market turmoil, you hear these 00:02:47.099 --> 00:02:50.099 three terms, run, panic, crisis, and they get 00:02:50.099 --> 00:02:52.080 tossed around almost interchangeably. All the 00:02:52.080 --> 00:02:54.719 time. But our source material is very clear that 00:02:54.719 --> 00:02:57.400 they represent a distinct, escalating scale of 00:02:57.400 --> 00:02:59.719 financial distress. So I think it's important 00:02:59.719 --> 00:03:03.419 for us to define this hierarchy of doom. based 00:03:03.419 --> 00:03:06.419 on how broadly the contagion spreads? Absolutely. 00:03:06.680 --> 00:03:09.219 The smallest unit is the bank run, which we just 00:03:09.219 --> 00:03:11.560 defined. It's localized. So one institution. 00:03:12.000 --> 00:03:14.680 Exactly. It affects a single financial institution. 00:03:15.340 --> 00:03:18.460 For instance, if you hear a rumor that your local 00:03:18.460 --> 00:03:20.719 credit union is underwater and you move your 00:03:20.719 --> 00:03:23.900 funds to a big national chain, that's a run on 00:03:23.900 --> 00:03:25.759 the credit union. And while that's damaging for 00:03:25.759 --> 00:03:28.280 them, the whole system doesn't collapse. No, 00:03:28.300 --> 00:03:30.599 the broader system can often absorb it without 00:03:30.599 --> 00:03:33.490 any serious incident. But the moment that fear 00:03:33.490 --> 00:03:36.389 jumps the fence. That's when we enter the territory 00:03:36.389 --> 00:03:40.150 of a banking panic or a bank panic. This is a 00:03:40.150 --> 00:03:42.830 much broader crisis. This is where many banks, 00:03:42.949 --> 00:03:46.310 often across a wide geographic area or an interconnected 00:03:46.310 --> 00:03:49.490 system, suffer simultaneous runs. And this happens 00:03:49.490 --> 00:03:51.569 because people are losing faith, not in just 00:03:51.569 --> 00:03:54.669 one bad actor, but in the whole setup. The whole 00:03:54.669 --> 00:03:56.629 financial architecture. People aren't just moving 00:03:56.629 --> 00:03:59.250 funds from bank A to bank B anymore. Right. They 00:03:59.250 --> 00:04:01.819 are collectively trying to convert. their threatened 00:04:01.819 --> 00:04:05.120 deposits into the safest possible asset, physical 00:04:05.120 --> 00:04:08.400 cash. Or get out completely. Or they're trying 00:04:08.400 --> 00:04:10.680 to exit the domestic banking system entirely, 00:04:10.979 --> 00:04:13.020 you know, moving capital offshore if they can. 00:04:13.139 --> 00:04:16.000 It's a mass flight to quality and it's driven 00:04:16.000 --> 00:04:19.579 by a really deep -seated distrust. And then the 00:04:19.579 --> 00:04:22.060 apex of this disaster, the most severe level, 00:04:22.160 --> 00:04:25.480 is the systemic banking crisis. What defines 00:04:25.480 --> 00:04:27.879 this level is just the sheer scope of it. We're 00:04:27.879 --> 00:04:30.199 talking about almost all or all of the banking 00:04:30.199 --> 00:04:32.540 capital in an entire country being essentially 00:04:32.540 --> 00:04:35.439 wiped out or frozen. When you reach that level, 00:04:35.519 --> 00:04:38.279 the cascading failure is devastating. I mean, 00:04:38.300 --> 00:04:41.120 truly devastating. Why? Because the entire mechanism 00:04:41.120 --> 00:04:43.899 that translates savings into productive investment 00:04:43.899 --> 00:04:47.639 just seizes up. It starves domestic businesses 00:04:47.639 --> 00:04:50.680 and consumers of capital. So no loans for inventory 00:04:50.680 --> 00:04:52.660 for a small business. No mortgages for families. 00:04:52.839 --> 00:04:55.560 No investment in new machinery for factories. 00:04:56.019 --> 00:04:59.040 This inevitably, and I mean inevitably, leads 00:04:59.040 --> 00:05:02.040 to a long, painful, and deep economic recession. 00:05:02.300 --> 00:05:03.939 And this is where it gets really fascinating, 00:05:04.100 --> 00:05:06.800 and frankly, a little terrifying, when we step 00:05:06.800 --> 00:05:09.339 back and actually quantify the sheer scale of 00:05:09.339 --> 00:05:11.540 the damage. It's staggering. We aren't talking 00:05:11.540 --> 00:05:13.980 about small market fluctuations here. We're talking 00:05:13.980 --> 00:05:16.420 about losses that cripple national economies 00:05:16.420 --> 00:05:19.519 for years. The data available from comprehensive 00:05:19.519 --> 00:05:23.959 analyses of systemically important crises between 00:05:23.959 --> 00:05:27.939 1970 and 2007, it paints a really grim picture 00:05:27.939 --> 00:05:30.800 of the aftermath. Let's start with the fiscal 00:05:30.800 --> 00:05:33.079 costs. Okay. So fiscal costs, that means the 00:05:33.079 --> 00:05:36.079 government money, taxpayer money necessary for 00:05:36.079 --> 00:05:38.220 the cleanup. The bailouts. The bailouts, the 00:05:38.220 --> 00:05:40.379 nationalizations, the restructuring, the guarantees. 00:05:40.660 --> 00:05:44.600 On average, those costs hit 13 % of the country's 00:05:44.600 --> 00:05:48.319 gross domestic product. 13 % of GDP. To put that 00:05:48.319 --> 00:05:50.180 in perspective for you, that is a massive amount 00:05:50.180 --> 00:05:52.779 of public debt or wealth transfer necessary just 00:05:52.779 --> 00:05:54.939 to stabilize the banks that failed. And that's 00:05:54.939 --> 00:05:57.750 just the public bill for the cleanup. The actual 00:05:57.750 --> 00:06:01.069 economic output lost due to the freezing of credit 00:06:01.069 --> 00:06:03.470 and investment is even more staggering. It's 00:06:03.470 --> 00:06:06.069 much worse. The sources show that economic output 00:06:06.069 --> 00:06:09.689 losses average approximately 20 % of GDP during 00:06:09.689 --> 00:06:12.350 the first four years alone of these crises. 20%. 00:06:12.350 --> 00:06:15.110 A fifth of a nation's entire economic output. 00:06:15.290 --> 00:06:19.790 Gone. In the space of four years, it simply evaporates. 00:06:20.009 --> 00:06:22.829 And it's not just a momentary contraction. It's 00:06:22.829 --> 00:06:25.910 a sustained... years -long contraction, fewer 00:06:25.910 --> 00:06:29.709 jobs, less technological development, and lower 00:06:29.709 --> 00:06:32.629 standards of living for a generation. When you 00:06:32.629 --> 00:06:34.990 consider that level of macroeconomic destruction, 00:06:35.329 --> 00:06:38.129 you really start to understand the fierce urgency 00:06:38.720 --> 00:06:41.379 with which individual banks operate when they 00:06:41.379 --> 00:06:43.720 sense even the initial signs of trouble. That 00:06:43.720 --> 00:06:46.019 leads perfectly into the bank's immediate mitigation 00:06:46.019 --> 00:06:49.279 strategies. So you're a bank manager. You see 00:06:49.279 --> 00:06:52.019 the first rumblings of a run. What are the first 00:06:52.019 --> 00:06:54.379 desperate steps you take to survive that liquidity 00:06:54.379 --> 00:06:56.720 squeeze? The very first step is to frantically 00:06:56.720 --> 00:06:59.180 acquire cash. You have to prove you have the 00:06:59.180 --> 00:07:00.959 physical ability to meet withdrawals. So you 00:07:00.959 --> 00:07:03.439 start calling other banks. Immediately. You tap 00:07:03.439 --> 00:07:05.220 your lines of credit with other commercial banks. 00:07:05.579 --> 00:07:08.000 When that dries up, your ultimate lifeline is 00:07:08.000 --> 00:07:10.000 the central bank, which acts as the lender of 00:07:10.000 --> 00:07:12.459 last resort. Getting that emergency liquidity 00:07:12.459 --> 00:07:14.920 is job number one. And at the same time, you're 00:07:14.920 --> 00:07:16.899 trying to manage the flow of money going out 00:07:16.899 --> 00:07:19.399 the door. You can't stop it, but you can slow 00:07:19.399 --> 00:07:22.360 it down. Exactly. You might limit customer withdrawal 00:07:22.360 --> 00:07:26.100 amounts, imposing hard cash limits per day. or 00:07:26.100 --> 00:07:28.100 you might institute scheduling. What does that 00:07:28.100 --> 00:07:30.279 mean, scheduling? If you can't get cash immediately, 00:07:30.639 --> 00:07:33.259 you schedule deliveries quickly to maintain the 00:07:33.259 --> 00:07:35.680 appearance of liquidity. You tell the customer, 00:07:35.759 --> 00:07:38.199 come back in an hour. So you're managing expectations. 00:07:38.839 --> 00:07:40.579 You're managing expectations, and you're preventing 00:07:40.579 --> 00:07:43.170 the line from turning into a riot. And internally, 00:07:43.350 --> 00:07:45.810 you're also trying to change the nature of your 00:07:45.810 --> 00:07:48.689 existing liabilities. You pivot aggressively 00:07:48.689 --> 00:07:51.790 toward encouraging high return term deposits. 00:07:52.149 --> 00:07:55.189 It's a really smart, incentivized strategy. They 00:07:55.189 --> 00:07:57.370 offer much higher interest rates to convince 00:07:57.370 --> 00:07:59.490 clients to move their liquid demand deposits, 00:07:59.889 --> 00:08:01.189 you know, the money they can take out instantly, 00:08:01.350 --> 00:08:04.449 into fixed term accounts that can't be withdrawn 00:08:04.449 --> 00:08:06.529 for 3, 6, or 12 months. So you're locking the 00:08:06.529 --> 00:08:09.029 money down. You are immediately reducing the 00:08:09.029 --> 00:08:12.250 bank's exposure to on -demand withdrawals. You're 00:08:12.250 --> 00:08:14.610 turning your most dangerous short -term liabilities 00:08:14.610 --> 00:08:18.269 into less risky long -term liabilities. And if 00:08:18.269 --> 00:08:21.009 all of that fails, what's the nuclear option 00:08:21.009 --> 00:08:23.670 for an individual bank? The temporary suspension 00:08:23.670 --> 00:08:26.529 of withdrawals. Historically, it was called a 00:08:26.529 --> 00:08:28.810 suspension of convertibility. You just shut the 00:08:28.810 --> 00:08:31.370 doors. You freeze the situation. You halt the 00:08:31.370 --> 00:08:34.600 run entirely. Now, while it restores order by 00:08:34.600 --> 00:08:37.980 imposing a stop, it is a monumental signal of 00:08:37.980 --> 00:08:41.039 distress. A huge red flag. A huge red flag. And 00:08:41.039 --> 00:08:43.399 it usually requires government or regulatory 00:08:43.399 --> 00:08:46.600 sanction. But for a desperate bank, it can be 00:08:46.600 --> 00:08:49.320 the only way to avoid immediate bankruptcy. OK, 00:08:49.399 --> 00:08:52.019 we've established the chaos a bank run causes. 00:08:52.379 --> 00:08:55.519 But to really understand why this phenomenon 00:08:55.519 --> 00:08:58.549 is so central to finance. We have to look past 00:08:58.549 --> 00:09:00.970 the panic and deep into the underlying design 00:09:00.970 --> 00:09:03.389 of banking itself. Right. The fractional reserve 00:09:03.389 --> 00:09:06.649 system. Why is this model, which is so critical 00:09:06.649 --> 00:09:09.809 for economic growth, so inherently fragile? The 00:09:09.809 --> 00:09:11.950 inherent vulnerability really stems from the 00:09:11.950 --> 00:09:13.929 fundamental service that banks provide to the 00:09:13.929 --> 00:09:16.570 economy. Which is what? They accept demand deposits. 00:09:16.870 --> 00:09:19.129 That's money that you, the depositor, need to 00:09:19.129 --> 00:09:21.450 be liquid and instantly accessible. But if the 00:09:21.450 --> 00:09:23.750 bank just sat on that cash, it would provide 00:09:23.750 --> 00:09:25.830 no economic benefit. It would just be a vault. 00:09:25.850 --> 00:09:28.190 So they invest it. They invest the majority of 00:09:28.190 --> 00:09:31.769 those deposits into productive but illiquid assets. 00:09:32.090 --> 00:09:33.830 And this creates the structural contradiction 00:09:33.830 --> 00:09:35.990 that every single bank lives with, which is the 00:09:35.990 --> 00:09:38.529 asset liability mismatch. Precisely. The bank's 00:09:38.529 --> 00:09:41.330 liabilities, your deposits, are highly liquid. 00:09:41.450 --> 00:09:44.309 They have the shortest possible maturity on demand. 00:09:44.529 --> 00:09:47.210 Right now. Right now. But the assets the bank 00:09:47.210 --> 00:09:50.789 holds are typically long -term loans. Think of 00:09:50.789 --> 00:09:53.649 the 30 -year mortgage. The five -year car loan 00:09:53.649 --> 00:09:56.809 or the massive 10 -year credit line to a manufacturing 00:09:56.809 --> 00:09:59.149 company that's building a new plant. These are 00:09:59.149 --> 00:10:02.149 long maturity assets. So the bank has successfully 00:10:02.149 --> 00:10:04.750 created liquidity out of illiquidity. That's 00:10:04.750 --> 00:10:07.629 its core function. It is. But it means that by 00:10:07.629 --> 00:10:10.350 design, no bank has enough immediate reserves 00:10:10.350 --> 00:10:13.350 to handle simultaneous withdrawal demands from 00:10:13.350 --> 00:10:15.610 all its liquid deposits. Just can't be done. 00:10:15.730 --> 00:10:17.889 So the system works perfectly only as long as 00:10:17.889 --> 00:10:20.370 people behave in an uncorrelated fashion. Exactly. 00:10:20.909 --> 00:10:22.470 Which brings us to the foundational economic 00:10:22.470 --> 00:10:25.230 theory explaining this mechanism, the Diamond 00:10:25.230 --> 00:10:28.789 -Dibvig model. This model, developed by Douglas 00:10:28.789 --> 00:10:31.309 Diamond and Philip Dibvig, is maybe the single 00:10:31.309 --> 00:10:34.549 most influential explanation for bank runs. It 00:10:34.549 --> 00:10:37.309 elegantly shows the bank acting as a risk -sharing 00:10:37.309 --> 00:10:40.309 intermediary. How so? It satisfies two groups, 00:10:40.629 --> 00:10:42.909 those borrowers who need long maturity loans 00:10:42.909 --> 00:10:45.690 and those depositors who need immediate liquidity. 00:10:46.620 --> 00:10:49.600 The bank efficiently pools the resources of these 00:10:49.600 --> 00:10:51.960 different types of customers. And the model introduces 00:10:51.960 --> 00:10:54.679 two critical types of depositors, right? The 00:10:54.679 --> 00:10:56.679 patient ones and the impatient ones. Exactly. 00:10:56.799 --> 00:10:59.240 The impatient depositors are those who experience 00:10:59.240 --> 00:11:02.379 an unexpected immediate need for cash, maybe 00:11:02.379 --> 00:11:04.960 a medical emergency or a sudden tuition payment. 00:11:05.100 --> 00:11:07.799 Life happens. Life happens. They need to withdraw 00:11:07.799 --> 00:11:10.639 early. The patient depositors are those who don't 00:11:10.639 --> 00:11:13.039 face an immediate shock. They can afford to wait 00:11:13.039 --> 00:11:15.519 and receive the full long -term return on their 00:11:15.519 --> 00:11:17.789 investment. And the genius of the bank is what? 00:11:18.149 --> 00:11:21.350 The genius is that through the law of large numbers, 00:11:21.529 --> 00:11:24.009 it can successfully predict the aggregate need 00:11:24.009 --> 00:11:27.169 for cash. It services the impatient customers 00:11:27.169 --> 00:11:29.269 while keeping the rest of the money invested 00:11:29.269 --> 00:11:32.350 for the patient customers. So stability relies 00:11:32.350 --> 00:11:35.470 on that prediction holding true. The moment that 00:11:35.470 --> 00:11:38.169 assumption, that assumption of uncorrelated behavior 00:11:38.169 --> 00:11:41.370 is shattered, the whole system just flips. And 00:11:41.370 --> 00:11:42.950 that's where the concept of the self -fulfilling 00:11:42.950 --> 00:11:45.159 prophecy kicks in. Right. What's fascinating 00:11:45.159 --> 00:11:48.220 here is that the run doesn't even require the 00:11:48.220 --> 00:11:51.360 bank to be fundamentally insolvent based on its 00:11:51.360 --> 00:11:53.940 assets. It can be a perfectly good bank. It can. 00:11:54.299 --> 00:11:57.559 A run can start merely from a false rumor or 00:11:57.559 --> 00:11:59.460 simply a perceived risk in the general economic 00:11:59.460 --> 00:12:02.620 climate. And crucially, depositors who might 00:12:02.620 --> 00:12:04.860 even know the bank is solvent and the rumor is 00:12:04.860 --> 00:12:08.340 false still have a powerful, completely rational 00:12:08.340 --> 00:12:11.019 incentive to withdraw their money if they suspect 00:12:11.019 --> 00:12:12.820 that other depositors will believe the rumor 00:12:12.820 --> 00:12:15.860 and withdraw theirs. So your decision to participate 00:12:15.860 --> 00:12:18.299 in the panic isn't about your personal assessment 00:12:18.299 --> 00:12:20.539 of the bank's health. No. It's about your assessment 00:12:20.539 --> 00:12:23.399 of the crowd's irrationality. You're withdrawing 00:12:23.399 --> 00:12:25.379 your money not because you know the bank is dead, 00:12:25.460 --> 00:12:27.580 but because you know if everyone else acts as 00:12:27.580 --> 00:12:30.059 if it is, you will lose access to your money. 00:12:29.899 --> 00:12:32.440 your cash. This is a perfect example of the self 00:12:32.440 --> 00:12:35.639 -fulfilling prophecy, a term coined by the sociologist 00:12:35.639 --> 00:12:38.759 Robert K. Merton, who specifically cited bank 00:12:38.759 --> 00:12:40.860 runs in his work. I didn't know that. Oh, yeah. 00:12:40.960 --> 00:12:44.340 The expectation of a negative outcome creates 00:12:44.340 --> 00:12:46.720 the very conditions necessary for that negative 00:12:46.720 --> 00:12:49.100 outcome to occur. This brings us squarely into 00:12:49.100 --> 00:12:51.980 the realm of game theory, specifically the concept 00:12:51.980 --> 00:12:55.379 of the Nash equilibrium, as noted by former Bank 00:12:55.379 --> 00:12:57.919 of England governor Mervyn King. Yes, you have 00:12:57.919 --> 00:13:01.480 two equilibria. The good one, which is stability, 00:13:01.759 --> 00:13:03.740 and the bad one, which is the run. Okay. The 00:13:03.740 --> 00:13:07.399 good equilibrium is stable. Nobody withdraws. 00:13:07.559 --> 00:13:09.940 The bank is stable, and everyone gets the full 00:13:09.940 --> 00:13:12.679 return on their money. The bad equilibrium is 00:13:12.679 --> 00:13:15.740 also stable. Kay observed that while it may not 00:13:15.740 --> 00:13:18.240 be rational for any single person to start a 00:13:18.240 --> 00:13:20.580 bank run. Right. Why would you? Once the run 00:13:20.580 --> 00:13:22.600 has begun, once that collective action has started. 00:13:22.960 --> 00:13:25.019 it becomes entirely rational for you to participate. 00:13:25.279 --> 00:13:27.759 Why is participation so rational? I mean, break 00:13:27.759 --> 00:13:29.820 that down. Because the bank has a limited amount 00:13:29.820 --> 00:13:32.799 of cash. Yeah. If you wait, you risk being the 00:13:32.799 --> 00:13:34.899 last one in line when the cash runs out. And 00:13:34.899 --> 00:13:37.779 at that point... At that point, the bank is forced 00:13:37.779 --> 00:13:41.139 into a fire sale of its long -term assets, selling 00:13:41.139 --> 00:13:44.860 loans or securities way below market value, which 00:13:44.860 --> 00:13:47.379 causes losses for everyone who's still in. And 00:13:47.379 --> 00:13:50.259 if it fails completely? You lose all or part 00:13:50.259 --> 00:13:52.769 of your deposit, unless you're insured. Therefore, 00:13:52.990 --> 00:13:56.809 your only rational, self -protective move is 00:13:56.809 --> 00:13:59.429 to join the panic. Secure your money before the 00:13:59.429 --> 00:14:01.330 collective action bankrupts the institution. 00:14:01.690 --> 00:14:04.490 So the individual rational choice aggregates 00:14:04.490 --> 00:14:07.409 into a disastrous, systemically irrational outcome. 00:14:07.730 --> 00:14:09.870 That's the tragedy of it. The theory is modern, 00:14:09.970 --> 00:14:12.470 but the mechanics of the run are... Well, they're 00:14:12.470 --> 00:14:15.210 timeless. History shows this fragility has been 00:14:15.210 --> 00:14:17.809 exploited and exposed for centuries, dating way 00:14:17.809 --> 00:14:20.169 back to the very origins of organized finance. 00:14:20.490 --> 00:14:23.389 The initial examples emerged as part of the broader 00:14:23.389 --> 00:14:26.250 cycles of credit expansion and contraction that 00:14:26.250 --> 00:14:28.549 defined early capitalism. We can look back to 00:14:28.549 --> 00:14:30.850 the 16th and 17th centuries in England. OK. You 00:14:30.850 --> 00:14:32.850 had goldsmiths who were essentially functioning 00:14:32.850 --> 00:14:35.230 as the first banks. They'd issue promissory notes 00:14:35.230 --> 00:14:37.889 for deposited gold. Right, like an IOU. Exactly. 00:14:38.460 --> 00:14:41.120 But when bad harvests or wars led to general 00:14:41.120 --> 00:14:44.039 famine and unrest, people needed their gold back, 00:14:44.200 --> 00:14:46.820 causing severe failures among these early financial 00:14:46.820 --> 00:14:49.220 entities. And the same pattern just accelerated 00:14:49.220 --> 00:14:51.659 wildly during the great speculative boom. Oh, 00:14:51.659 --> 00:14:54.480 absolutely. You see the familiar chaos of the 00:14:54.480 --> 00:14:58.200 Dutch tulip manias between 1634 and 1637, where 00:14:58.200 --> 00:15:00.639 speculation led to a massive credit expansion 00:15:00.639 --> 00:15:02.940 and then a total collapse. And this was mirrored 00:15:02.940 --> 00:15:06.100 by two spectacular contemporary failures, right? 00:15:06.139 --> 00:15:08.929 It was. The British South... sea bubble from 00:15:08.929 --> 00:15:12.870 1717 to 1719, and in France, the Mississippi 00:15:12.870 --> 00:15:15.889 Company scheme masterminded by John Law, which 00:15:15.889 --> 00:15:19.210 ran from 1717 to 1720. And that one in France, 00:15:19.330 --> 00:15:21.850 that led directly to a run. It explicitly led 00:15:21.850 --> 00:15:24.529 to a massive cash run on the Banque Royale after 00:15:24.529 --> 00:15:27.259 the collapse of Law's speculative empire. These 00:15:27.259 --> 00:15:29.519 events really cemented the idea that financial 00:15:29.519 --> 00:15:31.919 systems were prone to sudden, violent failure 00:15:31.919 --> 00:15:34.360 far beyond the pace of the real economy. But 00:15:34.360 --> 00:15:36.480 what's particularly fascinating is that the run 00:15:36.480 --> 00:15:38.379 hasn't always been just a reaction to financial 00:15:38.379 --> 00:15:41.240 stress. It's been used as a proactive, deliberate 00:15:41.240 --> 00:15:44.320 tactic, a form of political blackmail or coercion. 00:15:44.379 --> 00:15:47.080 The sources detail an amazing moment in 1832 00:15:47.080 --> 00:15:49.830 Britain. The political climate was intensely 00:15:49.830 --> 00:15:53.330 volatile. Reformers were absolutely incensed 00:15:53.330 --> 00:15:55.409 when the government under the Duke of Wellington 00:15:55.409 --> 00:15:58.409 attempted to prevent key political reforms that 00:15:58.409 --> 00:16:01.950 would expand the franchise. So how did they weaponize 00:16:01.950 --> 00:16:04.769 finance? What did they do? Their rallying cry 00:16:04.769 --> 00:16:07.289 was brilliant in its simplicity and effectiveness. 00:16:07.669 --> 00:16:11.500 Stop the Duke. Go for gold. Wow. This wasn't 00:16:11.500 --> 00:16:12.980 a financial rumor. It was a political command. 00:16:13.600 --> 00:16:16.320 Reformers organized mass withdrawals, urging 00:16:16.320 --> 00:16:18.639 citizens to take their gold and notes out of 00:16:18.639 --> 00:16:20.440 the Bank of England and its private affiliates. 00:16:20.440 --> 00:16:22.840 What was the goal? They intended to deplete the 00:16:22.840 --> 00:16:25.440 central bank's reserves, paralyzing the government's 00:16:25.440 --> 00:16:27.679 ability to function and finance its operations. 00:16:27.960 --> 00:16:30.179 And what was the practical effect? Did it work? 00:16:30.440 --> 00:16:32.840 The pressure was enormous. Historians estimate 00:16:32.840 --> 00:16:35.720 that in just a few weeks, close to $1 .8 million 00:16:35.720 --> 00:16:38.450 in gold was withdrawn. This demonstration of 00:16:38.450 --> 00:16:41.049 financial force leveraging the inherent fragility 00:16:41.049 --> 00:16:43.509 of the gold standard system was enough to convince 00:16:43.509 --> 00:16:45.830 the governing elite that continued resistance 00:16:45.830 --> 00:16:48.529 to the reform bill was impossible. So it actually 00:16:48.529 --> 00:16:51.649 worked. It did. The Duke of Wellington's attempt 00:16:51.649 --> 00:16:54.269 to form a government failed, and the reform was 00:16:54.269 --> 00:16:57.409 passed. It showed that if trust is the foundation 00:16:57.409 --> 00:17:00.990 of finance, coordinated distrust can be a political 00:17:00.990 --> 00:17:03.840 battering ram. Moving forward a century. The 00:17:03.840 --> 00:17:06.160 era perhaps most associated with the catastrophic 00:17:06.160 --> 00:17:08.420 effects of bank runs is the Great Depression 00:17:08.420 --> 00:17:12.319 in the United States between 1929 and 1933. The 00:17:12.319 --> 00:17:14.779 sheer scale of the banking crises during the 00:17:14.779 --> 00:17:17.740 Depression is just hard to overstate. Former 00:17:17.740 --> 00:17:20.740 U .S. Federal Reserve Chairman Ben Bernanke argued 00:17:20.740 --> 00:17:24.509 compellingly that the economic contraction The 00:17:24.509 --> 00:17:26.569 prolonged depth and severity of the depression 00:17:26.569 --> 00:17:29.809 was caused directly by these bank runs. Not just 00:17:29.809 --> 00:17:31.549 the stock market crash. That was the trigger. 00:17:31.630 --> 00:17:34.289 But the bank runs, alongside the Federal Reserve's 00:17:34.289 --> 00:17:36.329 failure to provide adequate liquidity and prevent 00:17:36.329 --> 00:17:38.630 deflation, that's what made it great. And it 00:17:38.630 --> 00:17:40.730 wasn't one single event, right? It was a wave 00:17:40.730 --> 00:17:43.670 that moved across the country. Exactly. The geography 00:17:43.670 --> 00:17:46.170 of the panics is so telling. They began in the 00:17:46.170 --> 00:17:48.809 southern U .S. in November 1930, triggered by 00:17:48.809 --> 00:17:50.890 the failure of a major bank chain in Tennessee 00:17:50.890 --> 00:17:53.369 and Kentucky, which then just dominoed across 00:17:53.369 --> 00:17:55.430 its regional correspondent networks. And then 00:17:55.430 --> 00:17:57.910 it hit the cities. Then panic hit major metropolitan 00:17:57.910 --> 00:18:01.769 centers. New York City saw runs in December 1930, 00:18:02.089 --> 00:18:04.980 though they were contained. Philadelphia, Boston, 00:18:05.240 --> 00:18:08.740 Chicago, Toledo, St. Louis, each city experienced 00:18:08.740 --> 00:18:11.319 acute multi -institutional runs over the next 00:18:11.319 --> 00:18:14.420 three years. It demonstrated a prolonged and 00:18:14.420 --> 00:18:17.519 spreading breakdown of financial trust. So what 00:18:17.519 --> 00:18:20.940 was the long term macroeconomic consequence of 00:18:20.940 --> 00:18:24.000 all this individual panic? Well, economists Milton 00:18:24.000 --> 00:18:26.240 Friedman and Anna Schwartz famously detailed 00:18:26.240 --> 00:18:29.099 this in their work. They argued that the steady, 00:18:29.200 --> 00:18:32.420 widespread hoarding of cash. Meaning people pulling 00:18:32.420 --> 00:18:34.980 money out and literally stuffing it under mattresses. 00:18:35.019 --> 00:18:37.299 Literally. And that had a compounding effect. 00:18:37.519 --> 00:18:40.680 As banks lost reserves, they were forced to liquidate 00:18:40.680 --> 00:18:42.460 their loans, calling them in early or selling 00:18:42.460 --> 00:18:44.480 them off. Which means less money available for 00:18:44.480 --> 00:18:47.140 everyone else. Right. This act drastically and 00:18:47.140 --> 00:18:49.440 unintentionally decreased the overall money supply 00:18:49.440 --> 00:18:51.940 in the economy, leading directly to the massive 00:18:51.940 --> 00:18:54.700 economic shrinkage. The behavioral response of 00:18:54.700 --> 00:18:56.880 a nervous public translated directly into severe 00:18:56.880 --> 00:18:59.400 monetary policy tightening, completely independent 00:18:59.400 --> 00:19:01.480 of what the Fed was doing. This highlights the 00:19:01.480 --> 00:19:04.289 critical role of regulation. Our sources emphasize 00:19:04.289 --> 00:19:06.890 that bank runs were far more prevalent in U .S. 00:19:06.930 --> 00:19:09.529 states whose laws allowed only single branch 00:19:09.529 --> 00:19:12.809 banks. This is a crucial comparative point. Single 00:19:12.809 --> 00:19:15.230 branch banks are highly dependent on the success 00:19:15.230 --> 00:19:18.089 of a hyper localized economy, which often relies 00:19:18.089 --> 00:19:21.430 on a single industry like agriculture or manufacturing. 00:19:21.769 --> 00:19:24.069 So if the local factory shuts down, the bank 00:19:24.069 --> 00:19:27.250 fails. In contrast, look at Canada during the 00:19:27.250 --> 00:19:30.450 same era. Canada, with its regulatory structure 00:19:30.450 --> 00:19:32.970 that permitted nationwide multi -branch banks, 00:19:33.289 --> 00:19:36.470 experienced no bank runs during the Great Depression. 00:19:36.630 --> 00:19:40.440 Not one. The diversification of risk across multiple 00:19:40.440 --> 00:19:43.039 geographies and industries made their banks far 00:19:43.039 --> 00:19:45.539 more resilient to local shocks. It shows that 00:19:45.539 --> 00:19:47.380 while fractional reserve banking is fragile, 00:19:47.660 --> 00:19:50.200 regulation can be the primary determinant of 00:19:50.200 --> 00:19:52.700 risk. And fast forward to the 21st century. The 00:19:52.700 --> 00:19:55.519 2008 financial crisis saw analogs to bank runs, 00:19:55.680 --> 00:19:57.660 even if they looked different. It was less about 00:19:57.660 --> 00:19:59.720 the public queue and more about institutional 00:19:59.720 --> 00:20:02.480 fear. We saw what amounted to wholesale runs 00:20:02.480 --> 00:20:04.839 on financial institutions. These weren't typically 00:20:04.839 --> 00:20:07.000 your retail depositors queuing for cash. Who 00:20:07.000 --> 00:20:09.259 was it then? It was institutional lenders and 00:20:09.259 --> 00:20:12.099 investors refusing to renew short -term loans 00:20:12.099 --> 00:20:14.920 and credit lines to banks they feared were insolvent. 00:20:15.519 --> 00:20:19.259 This wholesale market run resulted in the nationalizations 00:20:19.259 --> 00:20:21.599 of institutions like Northern Rock in the U .K. 00:20:21.680 --> 00:20:24.619 and IndyMac in the U .S. And the trigger then 00:20:24.619 --> 00:20:27.670 was what? A combination of extremely low real 00:20:27.670 --> 00:20:30.869 interest rates and the proliferation of complex, 00:20:31.069 --> 00:20:34.710 unstressed tested financial products like subprime 00:20:34.710 --> 00:20:37.509 mortgage backed securities. They collapsed the 00:20:37.509 --> 00:20:40.630 moment the housing market began to turn. But 00:20:40.630 --> 00:20:43.490 the fundamental principle was identical. A fear 00:20:43.490 --> 00:20:45.990 of insufficient liquidity to meet immediate demands. 00:20:46.650 --> 00:20:49.309 When a run escalates to a systemic crisis, it's 00:20:49.309 --> 00:20:51.329 a failure not just of the banks, but often of 00:20:51.329 --> 00:20:54.150 regulatory oversight. Systemic crises tend to 00:20:54.150 --> 00:20:56.650 result when regulators ignore or mismanage the 00:20:56.650 --> 00:20:59.349 spillover effects of localized risk. And that's 00:20:59.349 --> 00:21:00.730 when the government and the central bank have 00:21:00.730 --> 00:21:03.690 to step in with massive intervention tools. The 00:21:03.690 --> 00:21:06.190 most immediate is emergency liquidity support, 00:21:06.490 --> 00:21:09.089 just making sure that viable institutions don't 00:21:09.089 --> 00:21:11.450 die from a temporary cash shortage. And guarantees. 00:21:12.089 --> 00:21:14.069 Blanket guarantees are also frequently deployed, 00:21:14.309 --> 00:21:17.170 promising the public that all deposits, not just 00:21:17.170 --> 00:21:20.569 insured ones, are safe. Though the sources note 00:21:20.569 --> 00:21:22.849 that these interventions are complex and not 00:21:22.849 --> 00:21:25.549 always deployed successfully. When managing a 00:21:25.549 --> 00:21:28.089 crisis of this magnitude, the sources highlight 00:21:28.089 --> 00:21:31.869 a really dangerous paradox. The delay in intervention. 00:21:32.509 --> 00:21:35.920 Delay is the single most costly error. Intervention 00:21:35.920 --> 00:21:38.160 is often put off because regulators or politicians 00:21:38.160 --> 00:21:40.940 hope that the market will stabilize itself. Or 00:21:40.940 --> 00:21:42.960 they're nervous about the political optics of 00:21:42.960 --> 00:21:46.019 a bailout. Exactly. But this waiting game dramatically 00:21:46.019 --> 00:21:48.460 increases the stress and the eventual cost to 00:21:48.460 --> 00:21:51.500 the economy. The longer the delay, the more assets 00:21:51.500 --> 00:21:54.059 must be liquidated at fire sale prices and the 00:21:54.059 --> 00:21:57.000 deeper the resulting recession. Speed is absolutely 00:21:57.000 --> 00:21:58.859 crucial. And when they finally do intervene, 00:21:59.059 --> 00:22:01.220 not all cleanup measures are equally effective. 00:22:01.869 --> 00:22:04.269 What are the characteristics of successful crisis 00:22:04.269 --> 00:22:06.269 management programs? They need to be specific 00:22:06.269 --> 00:22:08.789 and transparent. Successful programs are highly 00:22:08.789 --> 00:22:11.730 targeted, and they specify clear, quantifiable 00:22:11.730 --> 00:22:13.990 rules for assistance. Like what? This includes 00:22:13.990 --> 00:22:16.470 rapid corporate restructuring, targeted debt 00:22:16.470 --> 00:22:18.650 relief for distressed borrowers to stabilize 00:22:18.650 --> 00:22:22.190 asset prices, and crucially, transparently recognizing 00:22:22.190 --> 00:22:25.049 all the bank losses and recapitalizing those 00:22:25.049 --> 00:22:27.869 banks immediately and sufficiently. I want to 00:22:27.869 --> 00:22:30.150 focus on a frequently proposed cleanup strategy 00:22:30.150 --> 00:22:32.690 that the sources suggest is actually largely 00:22:32.690 --> 00:22:36.990 ineffective. The bad bank concept. Ah, the bad 00:22:36.990 --> 00:22:40.690 bank. The idea is elegant in theory. It's a government 00:22:40.690 --> 00:22:43.430 -run asset management company created specifically 00:22:43.430 --> 00:22:46.529 to buy the non -performing assets. The toxic 00:22:46.529 --> 00:22:49.230 loans and junk securities. Right. to take them 00:22:49.230 --> 00:22:51.809 off the private bank balance sheets. The private 00:22:51.809 --> 00:22:53.990 banks are then left with clean books, which should 00:22:53.990 --> 00:22:55.710 allow them to resume lending and investment. 00:22:55.930 --> 00:22:57.990 But where does the breakdown occur? If the balance 00:22:57.990 --> 00:22:59.950 sheets are clean, why doesn't lending resume? 00:23:00.210 --> 00:23:02.789 The core constraint is political, which often 00:23:02.789 --> 00:23:04.670 makes these bad banks ineffective, according 00:23:04.670 --> 00:23:07.150 to institutions like the IMF. The problem is 00:23:07.150 --> 00:23:09.849 asset valuation. How much are they worth? Exactly. 00:23:10.269 --> 00:23:12.990 If the bad bank buys the assets at the true depressed 00:23:12.990 --> 00:23:16.450 market price, the immediate recognition of massive 00:23:16.450 --> 00:23:20.029 losses creates public outcry and anger, forcing 00:23:20.029 --> 00:23:22.210 the government to impose severe penalties on 00:23:22.210 --> 00:23:25.609 bank management. Okay. Conversely, if the bad 00:23:25.609 --> 00:23:28.130 bank buys the assets at an inflated price to 00:23:28.130 --> 00:23:30.549 save the bank, which is often the political reality, 00:23:30.950 --> 00:23:34.049 it amounts to a massive expensive subsidy for 00:23:34.049 --> 00:23:36.309 failed management, putting the public at risk 00:23:36.309 --> 00:23:38.460 without restoring market discipline. So it's 00:23:38.460 --> 00:23:40.759 caught in a political trap. The political pressure 00:23:40.759 --> 00:23:43.240 prevents the bad bank from operating purely based 00:23:43.240 --> 00:23:46.579 on cold, necessary economic principles. Let's 00:23:46.579 --> 00:23:49.440 shift now from that visible chaos to a kind of 00:23:49.440 --> 00:23:51.880 hidden erosion. We need to discuss the specific 00:23:51.880 --> 00:23:54.359 and insidious threat that operates below the 00:23:54.359 --> 00:23:57.599 radar of a frantic queue. The silent run. The 00:23:57.599 --> 00:24:00.440 term silent run has evolved a bit, but one critical 00:24:00.440 --> 00:24:02.819 definition released to the slow drain of funds 00:24:02.819 --> 00:24:05.740 tied to zombie banks. Zombie banks. These are 00:24:05.740 --> 00:24:08.039 financial institutions that are technically insolvent 00:24:08.039 --> 00:24:11.079 due to large unbooked loss exposure. They have 00:24:11.079 --> 00:24:13.559 huge implicit fiscal deficits, but they continue 00:24:13.559 --> 00:24:15.579 operating, often propped up by temporary government 00:24:15.579 --> 00:24:18.440 support or just accounting tricks. And as doubt 00:24:18.440 --> 00:24:21.279 about them grows, the silent run puts pressure 00:24:21.279 --> 00:24:23.579 on everyone, not just the zombie bank itself. 00:24:23.920 --> 00:24:27.299 Exactly. Healthy competitors are squeezed because 00:24:27.299 --> 00:24:29.960 the zombie bank is destabilizing the entire system. 00:24:30.279 --> 00:24:33.119 When funding costs rise, zombie banks often pay 00:24:33.119 --> 00:24:35.559 higher interest rates to roll over their liabilities, 00:24:35.779 --> 00:24:38.539 which squeezes the profit margins of healthier, 00:24:38.759 --> 00:24:41.559 better -run competitors who now have to compete 00:24:41.559 --> 00:24:44.039 with those subsidized rates. So the bad actor 00:24:44.039 --> 00:24:46.579 drags down the good actors. Yes. And furthermore, 00:24:46.640 --> 00:24:49.559 if a zombie bank is forced to sell assets, the 00:24:49.559 --> 00:24:52.059 mere knowledge of their distress can drive down 00:24:52.059 --> 00:24:54.519 the market value of those assets, imposing capital 00:24:54.519 --> 00:24:56.799 losses on healthy banks that hold similar assets. 00:24:57.400 --> 00:25:00.640 It's a systemic contagion caused by slow, persistent 00:25:00.640 --> 00:25:03.940 decay. Our sources also present a second definition 00:25:03.940 --> 00:25:06.319 of the silent RIN, one that's relevant in countries 00:25:06.319 --> 00:25:09.140 that do have deposit insurance. This is a subtle 00:25:09.140 --> 00:25:11.859 but really telling behavioral pattern. It describes 00:25:11.859 --> 00:25:14.579 a phenomenon when insured depositors who know 00:25:14.579 --> 00:25:17.940 their funds are safe up to, say, $250 ,000. They 00:25:17.940 --> 00:25:20.220 don't empty their accounts completely? No, but 00:25:20.220 --> 00:25:22.240 they draw down their balances to just below the 00:25:22.240 --> 00:25:24.519 deposit insurance limit. Why do this if their 00:25:24.519 --> 00:25:27.170 money is supposedly safe? It's a calculated, 00:25:27.390 --> 00:25:30.549 cautious vote of no confidence. It indicates 00:25:30.549 --> 00:25:33.250 that they trust the insurance limit, but they 00:25:33.250 --> 00:25:35.390 doubt the government's ability or speed to make 00:25:35.390 --> 00:25:37.990 good on promises for amounts above that limit. 00:25:38.170 --> 00:25:39.769 Or they're afraid they just won't be able to 00:25:39.769 --> 00:25:41.549 get their money when they need it. Precisely. 00:25:41.750 --> 00:25:44.529 They fear the lack of immediate access might 00:25:44.529 --> 00:25:47.750 still cost them opportunities. By moving funds 00:25:47.750 --> 00:25:50.289 down to the limit, they signal doubt about the 00:25:50.289 --> 00:25:52.289 system's liquidity and operational capacity, 00:25:52.710 --> 00:25:55.190 even while acknowledging the financial guarantee. 00:25:55.690 --> 00:25:59.170 It's a powerful, quiet signal of rising systemic 00:25:59.170 --> 00:26:02.069 distrust. The history of bank runs shows that 00:26:02.069 --> 00:26:04.190 stability requires both projecting confidence 00:26:04.190 --> 00:26:06.529 from the individual institution and reinforcing 00:26:06.529 --> 00:26:09.069 the structure globally. Let's start with the 00:26:09.069 --> 00:26:11.809 almost theatrical individual techniques used 00:26:11.809 --> 00:26:14.509 historically to avoid triggering a panic. Individual 00:26:14.509 --> 00:26:16.509 banks understood that psychology was their biggest 00:26:16.509 --> 00:26:19.210 enemy. Historically, they invested heavily in 00:26:19.210 --> 00:26:21.250 just projecting stability. The architect. This 00:26:21.250 --> 00:26:24.349 is why you see classic banks built with massive 00:26:24.349 --> 00:26:28.369 heavy stone facades, marble columns, bronze fittings. 00:26:28.799 --> 00:26:31.380 The sheer physical weight and permanence of the 00:26:31.380 --> 00:26:33.599 building was intended to communicate that the 00:26:33.599 --> 00:26:35.900 bank was heavier and more permanent than the 00:26:35.900 --> 00:26:38.119 fleeting fear of the market. And the staff, too. 00:26:38.279 --> 00:26:41.039 Similarly, staff were encouraged to dress conservatively 00:26:41.039 --> 00:26:44.160 to project an aura of reliability. And before 00:26:44.160 --> 00:26:46.279 the existence of federal deposit insurance, the 00:26:46.279 --> 00:26:48.619 physical layout of the bank itself was a primary 00:26:48.619 --> 00:26:51.619 defense mechanism. It was literally about hiding 00:26:51.619 --> 00:26:54.640 the line. Literally. It made sense for a bank 00:26:54.640 --> 00:26:57.619 to have an extremely large lobby and highly efficient 00:26:57.619 --> 00:27:01.089 service staff. Why? Because the main signal of 00:27:01.089 --> 00:27:04.130 a bank run to passersby was the queue spilling 00:27:04.130 --> 00:27:06.329 onto the street. So if you keep the line inside. 00:27:06.410 --> 00:27:08.410 If the lines were contained inside the enormous 00:27:08.410 --> 00:27:10.990 lobby, people walking past were unaware of the 00:27:10.990 --> 00:27:13.950 crisis unfolding within. Stopping that visual 00:27:13.950 --> 00:27:16.329 signal from reaching the street was a key psychological 00:27:16.329 --> 00:27:18.809 tactic to prevent fear from spreading outside 00:27:18.809 --> 00:27:20.910 the bank's walls. And if a run started anyway, 00:27:21.170 --> 00:27:25.269 banks sometimes resorted to clever, albeit manipulative. 00:27:25.690 --> 00:27:28.490 tactics to slow the momentum artificially. Yes. 00:27:28.730 --> 00:27:31.450 The goal was always to buy time for the central 00:27:31.450 --> 00:27:34.170 bank or other sources of liquidity to arrive. 00:27:34.789 --> 00:27:37.970 A common tactic was to enlist employees, friends 00:27:37.970 --> 00:27:40.750 and relatives to stand in line and conduct many 00:27:40.750 --> 00:27:44.269 small, slow transactions. Really? Oh, yeah. Paying 00:27:44.269 --> 00:27:46.369 out small amounts in diverse forms of currency, 00:27:46.630 --> 00:27:50.150 anything to artificially slow the flow of genuine 00:27:50.150 --> 00:27:52.769 withdrawals. It gives the appearance that the 00:27:52.769 --> 00:27:55.609 bank is operating smoothly. but just slowly, 00:27:55.789 --> 00:27:58.670 which drains the depositor's momentum and adrenaline. 00:27:58.970 --> 00:28:01.390 And then there's the opposite tactic, the visible 00:28:01.390 --> 00:28:04.210 show of reassurance. Right. Scheduling prominent, 00:28:04.369 --> 00:28:07.190 highly visible deliveries of cash, often in armored 00:28:07.190 --> 00:28:09.789 cars, making a point of wheeling large carts 00:28:09.789 --> 00:28:12.349 of notes into the vault in full view of the public. 00:28:12.529 --> 00:28:15.250 A bit of theater. It's a deliberate show of force 00:28:15.250 --> 00:28:17.990 and liquidity designed to convince panicked participants 00:28:17.990 --> 00:28:19.970 in the line that the vault is being actively 00:28:19.970 --> 00:28:22.549 restocked, thereby removing the scarcity mentality 00:28:22.549 --> 00:28:25.470 that fuels the rush. Ultimately, the most powerful 00:28:25.470 --> 00:28:27.849 psychological weapon for a bank facing a run 00:28:27.849 --> 00:28:30.630 short of actual failure is the threat of suspension 00:28:30.630 --> 00:28:33.690 of convertibility. Temporarily suspending withdrawals 00:28:33.690 --> 00:28:37.109 stops a run dead in its tracks. But the interesting 00:28:37.109 --> 00:28:39.329 finding from our sources is that the threat itself 00:28:39.910 --> 00:28:42.769 often proves enough to prevent the run from fully 00:28:42.769 --> 00:28:45.210 materializing. How does that work? If a bank 00:28:45.210 --> 00:28:48.049 can credibly signal that it's about to stop payments, 00:28:48.269 --> 00:28:51.230 it changes the depositor's calculus from I must 00:28:51.230 --> 00:28:54.630 withdraw now or lose my cash to if I withdraw 00:28:54.630 --> 00:28:57.130 now, I might trigger the suspension and lose 00:28:57.130 --> 00:29:01.019 access entirely. That shift in fear can sometimes 00:29:01.019 --> 00:29:03.099 pause the panic long enough for regulators to 00:29:03.099 --> 00:29:05.400 step in. OK, so let's move to the systemic techniques. 00:29:05.599 --> 00:29:08.140 The massive firewalls built into the entire financial 00:29:08.140 --> 00:29:09.940 architecture that protect the whole economy. 00:29:10.140 --> 00:29:12.819 The most important one in many countries is deposit 00:29:12.819 --> 00:29:15.559 insurance. Deposit insurance, like the U .S. 00:29:15.559 --> 00:29:17.960 Federal Deposit Insurance Corporation, or FDIC, 00:29:18.160 --> 00:29:20.500 is designed to interrupt that self -fulfilling 00:29:20.500 --> 00:29:23.539 prophecy. By insuring deposits up to a certain 00:29:23.539 --> 00:29:26.220 amount, it removes the individual depositor's 00:29:26.220 --> 00:29:28.380 rational incentive to withdraw simply because 00:29:28.380 --> 00:29:30.819 others are doing so. For the vast majority of 00:29:30.819 --> 00:29:33.039 retail depositors, their money is safe regardless 00:29:33.039 --> 00:29:36.019 of the bank's solvency. The reason to run is 00:29:36.019 --> 00:29:38.400 gone. But you mentioned earlier that depositors 00:29:38.400 --> 00:29:40.720 still fear a lack of immediate access during 00:29:40.720 --> 00:29:44.220 a bank failure. How does the FDIC address that 00:29:44.220 --> 00:29:47.259 specific fear? The operational strategy is key 00:29:47.259 --> 00:29:49.980 here. The FDIC doesn't just guarantee the money. 00:29:50.559 --> 00:29:53.339 It guarantees continuity. They keep their takeover 00:29:53.339 --> 00:29:56.539 operations secret, conducting the sale or restructuring 00:29:56.539 --> 00:29:58.559 over a weekend. So no one knows it's happening. 00:29:58.779 --> 00:30:01.000 And then the branches reopen on Monday morning 00:30:01.000 --> 00:30:03.579 under new ownership, usually a bridge bank or 00:30:03.579 --> 00:30:06.539 another solvent institution. This prevents the 00:30:06.539 --> 00:30:09.019 run fears associated with the multi -day lack 00:30:09.019 --> 00:30:11.619 of access that historically accompanied bank 00:30:11.619 --> 00:30:14.500 failures. The seamless transition reinforces 00:30:14.500 --> 00:30:16.869 public trust in the system's resilience. The 00:30:16.869 --> 00:30:19.269 second massive systemic defense mechanism is 00:30:19.269 --> 00:30:21.289 the central bank's role as the lender of last 00:30:21.289 --> 00:30:23.450 resort. This is the ultimate safety valve for 00:30:23.450 --> 00:30:25.930 the entire system. The central bank guarantees 00:30:25.930 --> 00:30:28.029 that it will provide short term loans to solvent 00:30:28.029 --> 00:30:31.269 banks facing unexpected liquidity demands. This 00:30:31.269 --> 00:30:33.769 foundational role was analyzed extensively by 00:30:33.769 --> 00:30:37.990 Walter Bagehot in his influential 1873 work Lombard 00:30:37.990 --> 00:30:40.430 Street. And his classic dictum was that the central 00:30:40.430 --> 00:30:43.170 bank should lend freely at a penalty rate on 00:30:43.170 --> 00:30:46.579 good collateral. Let's break that down. Why freely, 00:30:46.700 --> 00:30:49.980 but at a penalty rate and only on good collateral. 00:30:50.339 --> 00:30:54.180 Okay, lend freely is to address the panic, to 00:30:54.180 --> 00:30:56.619 assure the market that liquidity is unlimited 00:30:56.619 --> 00:30:59.259 and the crisis will not spread due to simple 00:30:59.259 --> 00:31:02.019 cash shortages. Got it. On good collateral means 00:31:02.019 --> 00:31:04.559 the central bank is not bailing out an insolvent 00:31:04.559 --> 00:31:07.619 bank, only a liquid one. This minimizes taxpayer 00:31:07.619 --> 00:31:10.059 risk. And the penalty rate. The penalty rate 00:31:10.059 --> 00:31:12.259 is crucial because it addresses moral hazard. 00:31:12.799 --> 00:31:15.200 It makes it expensive for banks to rely on the 00:31:15.200 --> 00:31:18.019 central bank, which incentivizes them to manage 00:31:18.019 --> 00:31:20.559 their own liquidity prudently in normal times. 00:31:20.779 --> 00:31:22.900 We also have structural regulations designed 00:31:22.900 --> 00:31:25.019 to reduce the possibility of insolvency in the 00:31:25.019 --> 00:31:27.200 first place, like capital requirements. Rules 00:31:27.200 --> 00:31:30.039 like the International Basel III, a court's dramatically 00:31:30.039 --> 00:31:32.299 strengthened requirements on how much capital 00:31:32.299 --> 00:31:34.960 banks must hold and introduced new regulatory 00:31:34.960 --> 00:31:38.269 mandates on liquidity and leverage. If a bank 00:31:38.269 --> 00:31:40.769 is forced to hold a greater buffer of high -quality 00:31:40.769 --> 00:31:44.029 capital money that can absorb losses, the less 00:31:44.029 --> 00:31:46.089 likely they are to become insolvent. Which reduces 00:31:46.089 --> 00:31:48.990 the primary fear that triggers a run. Exactly. 00:31:49.049 --> 00:31:52.410 If a bank is less likely to fail, the rational 00:31:52.410 --> 00:31:55.410 incentive to run is diminished. But this entire 00:31:55.410 --> 00:31:58.329 edifice of safety deposit insurance, the lender 00:31:58.329 --> 00:32:00.769 of last resort, it creates the classic problem 00:32:00.769 --> 00:32:04.049 we hear about in finance, moral hazard. It does. 00:32:04.269 --> 00:32:07.109 If we connect this to the bigger picture, The 00:32:07.109 --> 00:32:10.730 safety net, while necessary for stability, inherently 00:32:10.730 --> 00:32:13.930 reduces the bank's own incentive to avoid risky 00:32:13.930 --> 00:32:16.009 behavior. Because they know they'll get bailed 00:32:16.009 --> 00:32:18.109 out. If management knows the government will 00:32:18.109 --> 00:32:20.569 step in to prevent a systemic collapse, they 00:32:20.569 --> 00:32:23.420 may take on excessive risk. Regulators face a 00:32:23.420 --> 00:32:25.599 calculated trade -off. Which is? The collective 00:32:25.599 --> 00:32:27.380 societal benefits of preventing a catastrophic 00:32:27.380 --> 00:32:30.140 systemic collapse are generally believed to outweigh 00:32:30.140 --> 00:32:32.140 the costs associated with the increased risk 00:32:32.140 --> 00:32:34.460 -taking, provided that regulations like Basel 00:32:34.460 --> 00:32:37.700 III mitigate the worst excesses. The final and 00:32:37.700 --> 00:32:39.819 rather novel idea for mitigation comes in the 00:32:39.819 --> 00:32:42.279 form of a theoretical mechanism involving withdrawal 00:32:42.279 --> 00:32:44.819 fees. This concept is modeled as a Pigouvian 00:32:44.819 --> 00:32:48.839 device. A Pigouvian device. A fee intended to 00:32:48.839 --> 00:32:51.410 correct a negative externality. which in this 00:32:51.410 --> 00:32:53.589 case is this self -destructive behavior of the 00:32:53.589 --> 00:32:56.309 bank run. Withdrawal fees would be levied by 00:32:56.309 --> 00:32:58.750 the bank on successful withdrawals, potentially 00:32:58.750 --> 00:33:01.029 increasing in proportion to how fast deposits 00:33:01.029 --> 00:33:03.730 are flowing out or how close the bank is to its 00:33:03.730 --> 00:33:05.410 reserve limit. So you're literally putting a 00:33:05.410 --> 00:33:07.869 price on panic. You're pricing the panic, and 00:33:07.869 --> 00:33:09.569 it directly targets the rational calculation 00:33:09.569 --> 00:33:13.190 of the running depositor, particularly the uninsured 00:33:13.190 --> 00:33:16.069 wholesale depositor, whose money is too large 00:33:16.069 --> 00:33:18.529 to be covered by insurance. And the goal. By 00:33:18.529 --> 00:33:21.130 imposing a sudden price on the withdrawal, Running 00:33:21.130 --> 00:33:23.470 is no longer the most obvious rational strategy. 00:33:23.769 --> 00:33:27.269 It forces the depositor to pause, calculate and 00:33:27.269 --> 00:33:30.430 consider the cost of joining the run, thus reinforcing 00:33:30.430 --> 00:33:33.890 the stability provided by other mechanisms. While 00:33:33.890 --> 00:33:36.049 it's not widely implemented in commercial banking, 00:33:36.329 --> 00:33:38.529 similar techniques are used to price liquidity 00:33:38.529 --> 00:33:40.809 risks in markets like cryptocurrencies and money 00:33:40.809 --> 00:33:43.309 market funds. We started with the classic cinematic 00:33:43.309 --> 00:33:46.210 cue, but the reality of the 21st century is that 00:33:46.210 --> 00:33:48.759 panic moves at the speed of light. not the speed 00:33:48.759 --> 00:33:51.019 of a cue snaking around a corner. All different 00:33:51.019 --> 00:33:54.000 ballgame. This introduces the new urgent category 00:33:54.000 --> 00:33:57.559 of threat, the cyber run. The cyber run is a 00:33:57.559 --> 00:34:00.000 critical modern distinction. It's defined as 00:34:00.000 --> 00:34:02.660 a rapid massive withdrawal of deposits that is 00:34:02.660 --> 00:34:05.079 precipitated not by fears of credit insolvency 00:34:05.079 --> 00:34:07.799 that the bank made a bad loan, but by a systemic 00:34:07.799 --> 00:34:10.760 operational failure often caused by a cyber attack. 00:34:11.099 --> 00:34:13.139 So the fear isn't that the bank has lost money, 00:34:13.280 --> 00:34:16.440 but that I, the client, will lose access to my 00:34:16.440 --> 00:34:19.559 money when I need it most. Exactly. Depositors 00:34:19.559 --> 00:34:21.519 might believe the bank is solvent and holding 00:34:21.519 --> 00:34:24.219 healthy assets. But if a crippling cyber attack 00:34:24.219 --> 00:34:27.219 disables online banking, card settlement, or 00:34:27.219 --> 00:34:30.239 ATM networks, they fear losing timely access 00:34:30.239 --> 00:34:33.000 to funds or the ability to settle critical payments. 00:34:33.550 --> 00:34:35.670 They run to ensure they maintain control before 00:34:35.670 --> 00:34:37.590 the system locks up entirely. And the problem 00:34:37.590 --> 00:34:39.769 here is just acceleration. Current regulatory 00:34:39.769 --> 00:34:42.590 assumptions were simply not built for this velocity. 00:34:42.869 --> 00:34:44.829 This is a major regulatory challenge. We have 00:34:44.829 --> 00:34:48.130 the Liquidity Coverage Ratio, or LCR, which requires 00:34:48.130 --> 00:34:49.989 banks to hold sufficient high -quality liquid 00:34:49.989 --> 00:34:53.150 assets to survive a severe 30 -day stress scenario. 00:34:53.469 --> 00:34:56.449 The LCR is based on specific, regulatory -defined 00:34:56.449 --> 00:34:58.389 outflow assumptions over that 30 -day period. 00:34:58.809 --> 00:35:01.210 What does research show happens when you introduce 00:35:01.210 --> 00:35:04.389 a cyber run scenario into that LCR framework? 00:35:04.809 --> 00:35:06.710 Well, simulations for systemically important 00:35:06.710 --> 00:35:09.650 banks have demonstrated that cyber run outflows 00:35:09.650 --> 00:35:11.869 could arrive much faster than the LCR assumptions 00:35:11.869 --> 00:35:15.510 allow for. Not 30 days. Instead of 30 days, you 00:35:15.510 --> 00:35:18.489 might have hours. If a key payment system node 00:35:18.489 --> 00:35:21.130 is compromised, the liquidity shortfalls could 00:35:21.130 --> 00:35:23.469 spill over to the entire economy instantaneously, 00:35:23.650 --> 00:35:25.849 creating a situation where the banking system 00:35:25.849 --> 00:35:28.840 faces operational gridlock. Even if individual 00:35:28.840 --> 00:35:31.179 banks theoretically hold enough assets. And this 00:35:31.179 --> 00:35:33.400 accelerated speed isn't theoretical. The digital 00:35:33.400 --> 00:35:35.880 age has proven it. The collapse of Silicon Valley 00:35:35.880 --> 00:35:38.559 Bank in 2023 serves as a really stark illustration 00:35:38.559 --> 00:35:41.579 of velocity. It was stunning. While the SVB run 00:35:41.579 --> 00:35:43.639 was triggered by solvency concerns related to 00:35:43.639 --> 00:35:46.179 bond losses and a failed capital raise, the collapse 00:35:46.179 --> 00:35:48.119 was absolutely accelerated by digital speed. 00:35:48.510 --> 00:35:52.130 How fast? Customers withdrew $42 billion, nearly 00:35:52.130 --> 00:35:54.309 a quarter of the bank's total deposits, within 00:35:54.309 --> 00:35:57.829 a single 24 -hour period. $42 billion in a day. 00:35:57.909 --> 00:36:01.150 That unprecedented instantaneous velocity was 00:36:01.150 --> 00:36:03.730 only achievable through digital banking and wholesale 00:36:03.730 --> 00:36:06.349 treasury management platforms. The bank didn't 00:36:06.349 --> 00:36:09.389 have 30 days. It had one. And for an example 00:36:09.389 --> 00:36:11.849 of an explicit operational shock triggering a 00:36:11.849 --> 00:36:14.210 run, we can look to the case of Iran's state 00:36:14.210 --> 00:36:17.769 -owned Bank Sipa. Right. In June 2025, Bank Sipa 00:36:17.769 --> 00:36:20.550 was hit by a destructive cyber attack that disabled 00:36:20.550 --> 00:36:23.469 core banking functions, online services, card 00:36:23.469 --> 00:36:27.050 payments, and many ATMs were just down. The operational 00:36:27.050 --> 00:36:29.590 failure instantly triggered a physical run. So 00:36:29.590 --> 00:36:31.449 the digital failure created the physical queue. 00:36:31.650 --> 00:36:34.150 Precisely. Long queues formed immediately outside 00:36:34.150 --> 00:36:36.630 the remaining operational branches as deposits 00:36:36.780 --> 00:36:39.079 investors rushed for cash. This forced the bank 00:36:39.079 --> 00:36:41.199 to impose ad hoc withdrawal limits and temporary 00:36:41.199 --> 00:36:43.360 closures. And the panic spread. It spread so 00:36:43.360 --> 00:36:45.320 rapidly that the central bank had to intervene 00:36:45.320 --> 00:36:48.119 days later, declaring a 50 percent increase in 00:36:48.119 --> 00:36:50.119 liquidity supplied to the entire banking system. 00:36:50.780 --> 00:36:52.820 Behavior analysts confirmed it was a classic 00:36:52.820 --> 00:36:55.300 bank run, but the trigger was purely operational 00:36:55.300 --> 00:36:58.460 failure, not credit risk. So if the technology 00:36:58.460 --> 00:37:00.940 is moving faster than the regulations, what are 00:37:00.940 --> 00:37:03.659 the proposed safeguards against these ultra -fast 00:37:03.659 --> 00:37:06.639 cyber runs? Regulators are recognizing they need 00:37:06.639 --> 00:37:10.420 operational firewalls. One key proposal is the 00:37:10.420 --> 00:37:12.980 creation of an emergency payment node. What's 00:37:12.980 --> 00:37:15.760 that? Think of it as a dormant, narrow, pre -authorized 00:37:15.760 --> 00:37:18.639 payment bank activated only during a systemic 00:37:18.639 --> 00:37:22.130 operational outage. Its sole purpose would be 00:37:22.130 --> 00:37:24.510 to process critical wholesale payments between 00:37:24.510 --> 00:37:27.329 vital financial firms, maintaining payment continuity 00:37:27.329 --> 00:37:29.730 when the main platforms are down. And regulatory 00:37:29.730 --> 00:37:32.809 oversight itself needs to evolve to match the 00:37:32.809 --> 00:37:35.519 threat. Absolutely. Regulatory stress tests must 00:37:35.519 --> 00:37:37.940 now incorporate cyber -run scenarios with the 00:37:37.940 --> 00:37:40.019 same rigor traditionally applied to credit risk. 00:37:40.199 --> 00:37:42.420 We need to be testing for operational fragility 00:37:42.420 --> 00:37:44.420 and velocity. You have to ask. You have to ask. 00:37:44.639 --> 00:37:47.619 Can the system process high -volume rapid withdrawals 00:37:47.619 --> 00:37:50.340 during systemic failure? Or will the platform 00:37:50.340 --> 00:37:53.019 itself become the point of failure? This requires 00:37:53.019 --> 00:37:55.380 anticipating how rapidly fear can be communicated 00:37:55.380 --> 00:37:57.900 and actioned in a world of instant digital transfer. 00:37:58.059 --> 00:37:59.960 So we've covered a massive amount of ground today, 00:38:00.099 --> 00:38:03.199 tracking the bank run from the 17th century goldsmiths 00:38:03.199 --> 00:38:05.699 to the instantaneous digital chaos of today. 00:38:05.880 --> 00:38:08.400 And the core takeaway for me remains absolutely 00:38:08.400 --> 00:38:12.059 constant. The vulnerability of banks stems from 00:38:12.059 --> 00:38:14.780 their essential beneficial role as liquidity 00:38:14.780 --> 00:38:17.510 providers. That's it. They take illiquid long 00:38:17.510 --> 00:38:21.070 -term risk like loans and transform it into liquid 00:38:21.070 --> 00:38:25.349 short -term security, our deposits. That asset 00:38:25.349 --> 00:38:27.349 liability mismatch is both the architectural 00:38:27.349 --> 00:38:30.409 necessity and the architectural flaw. And we 00:38:30.409 --> 00:38:33.469 saw how that vulnerability scales from the individual 00:38:33.469 --> 00:38:37.090 run to the panic, culminating in a systemic crisis 00:38:37.090 --> 00:38:39.809 that can cost a nation a fifth of its GDP in 00:38:39.809 --> 00:38:42.860 lost output. Yeah. The psychological loop, that 00:38:42.860 --> 00:38:45.300 self -fulfilling prophecy, is what transforms 00:38:45.300 --> 00:38:48.159 rational individual action into collective economic 00:38:48.159 --> 00:38:50.559 destruction, driven by the game theory of who 00:38:50.559 --> 00:38:53.280 gets out first. And this financial reality, this 00:38:53.280 --> 00:38:55.679 deep fear of scarcity and loss of access, is 00:38:55.679 --> 00:38:57.860 so deeply imprinted on our collective storytelling. 00:38:58.199 --> 00:39:00.739 The bank run isn't just a dry economic concept. 00:39:00.940 --> 00:39:02.960 Not at all. It's a dramatic pivot point in fiction. 00:39:03.599 --> 00:39:05.599 From the crisis at the building and loan insecurity, 00:39:06.039 --> 00:39:08.420 it's a wonderful life. To the run on the bank 00:39:08.420 --> 00:39:12.360 in Mary Poppins or the classic 1932 film American 00:39:12.360 --> 00:39:15.659 Madness. These cultural references show how real 00:39:15.659 --> 00:39:18.320 economic trauma just leaves a lasting mark on 00:39:18.320 --> 00:39:20.719 our narratives. So what does this all mean for 00:39:20.719 --> 00:39:22.960 you listening to this? We learned that a bank 00:39:22.960 --> 00:39:25.820 run is essentially a rational panic based on 00:39:25.820 --> 00:39:28.280 distrust in the institution or the system. Right. 00:39:28.320 --> 00:39:30.820 Given that the modern. safety nest deposit insurance 00:39:30.820 --> 00:39:34.039 central bank liquidity are designed to eliminate 00:39:34.039 --> 00:39:36.760 the financial incentive to panic this raises 00:39:36.760 --> 00:39:39.349 an important and i think provocative question 00:39:39.349 --> 00:39:41.849 which is when digital velocity allows billions 00:39:41.849 --> 00:39:44.650 of dollars to move in a single day is the ultimate 00:39:44.650 --> 00:39:47.190 defense against a modern bank run less about 00:39:47.190 --> 00:39:49.869 physical reserves and more about instantaneous 00:39:49.869 --> 00:39:53.630 unwavering public trust transparency and effective 00:39:53.630 --> 00:39:56.389 communication especially when operational failures 00:39:56.389 --> 00:39:58.989 can trigger a panic just as easily as insolvency 00:39:58.989 --> 00:40:01.550 fears the speed of information and the speed 00:40:01.550 --> 00:40:03.710 of digital finance means that maintaining stability 00:40:03.710 --> 00:40:06.949 in the 21st century requires not just deep balance 00:40:06.949 --> 00:40:09.800 sheets but but absolute instantaneous confidence 00:40:09.800 --> 00:40:12.800 in the integrity of the system itself. Something 00:40:12.800 --> 00:40:14.619 for you to mull over the next time you tap your 00:40:14.619 --> 00:40:15.619 phone to check your balance.