Banking supervisors monitor deposit leaks at the click of a button

The recent crises at Silicon Valley Bank (SVB) in the United States and Credit Suisse in Switzerland have shown the strength of Spanish and European banks to withstand the onslaught, but have left an element of concern among supervisors: the digitization of banking and social networks are capable of causing deposit leaks at speeds unthinkable years ago, enough to sink a bank in a matter of hours.

In an act of the “la Caixa” Foundation held on Friday in Madrid, the vice president of the ECB, Luis de Guindos, warned about SVB and Credit Suisse of “the speed with which a bank can empty” in times of digitization. A few days before, he had insisted on the same issue: “With two clicks you can change a deposit from one site to another and that, together with social networks, are new elements that must be taken into consideration.”

His words refer to what happened in March in the international banking sector. In the case of SVB, the bank suffered close to $20 billion of deposit withdrawals in two days and regulators acted as another $40 billion was about to evaporate. At Credit Suisse, in the week between March 13 and 17, withdrawals were around 35,000 million euros.

“Now the crises are silent. A bank may be bleeding to death and you don’t see queues at the branches”, they indicate from one of the large Spanish entities. The image of customers withdrawing their money at branches is already part of the past, as is the possibility that the bank will close the door and gain time.

The cybercorralito does not exist, but the supervisors do not give up implementing some type of measure. “It is something that is indeed being discussed in the Basel supervisory environment. Decisions that can be drawn from these elements are beginning to be considered,” says Ángel Estrada, General Director of Financial Stability at the Bank of Spain.

Estrada, a member of the board of directors of the European Banking Authority (EBA), warns that “exit rates are significantly higher than previously seen in recent cases”, although “they refer to deposits specifically” and show ” the importance of diversifying the depositor base”.

Spanish banks are calm in this last aspect. From the association of former savings banks CECA they affirm that “no withdrawal of deposits has been received” and from the association of AEB banks its president, Alejandra Kindelán, highlighted this week the high diversification of liabilities, which is also widely distributed among individuals.

Guindos has been in favor of reinforcing liquidity mechanisms to quickly assist a bank in trouble. For entities, a preventive solution would be to include in the contracts with new depositors some type of clause that requires advance notice or to space capital outflows.

Juan Manuel Cendoya, vice president of Santander Spain, alluded in a recent article to the way in which social networks can spread a bank panic at full speed. “They have shown their ability to viralize and spread news and simple rumors to points of no return in just a few minutes,” he says.

Spanish banks have been reinforcing their capital for years in the face of ECB demands, but the latest crisis of confidence at the European level has shown that the key word is now liquidity. Oxygen to respond to an emergency. “Many times, the problem you may have is liquidity and not capital,” says Kindelán.

The capital of good quality Spanish banks exceeds the ECB’s requirements by 60,000 million after provisions were made for 16,000 million last year.

With regard to liquidity, the AEB calculates that Spanish banks are on average in a better position than European ones, with a ratio of 171%, which would give them the capacity to face deposit outflows for longer, compared to the average. 165% of the euro zone. In this calculation, 100% is equivalent to supporting 30 days without liquidity.

The banks claim to the European Commission that the mechanism of eventual rescues in which it works offers sufficient liquidity in case of need. Brussels is reviewing what is known as CMDI (Crisis Management and Deposit Insurance), which will include measures to alleviate the blow of eventual banking crises.