1. When the Economic Road Ends: Is Another Great Depression on the Horizon?
- Author:
- Tuomas Malinen
- Publication Date:
- 08-2023
- Content Type:
- Journal Article
- Journal:
- Baku Dialogues
- Institution:
- ADA University
- Abstract:
- We begin with a quintessential American expression: “uh oh.” Those words very likely embody the thoughts of the chief examiner of the U.S.-based Silicon Valley Bank (SVB) on 10 March 2023, the day when that bank faced a cataclysmic run on its deposits. In just two days, SVB customers tried to pull an astonishing 87% of deposits from the bank. It is obvious that no bank can survive such an onslaught. SVB was destined to fail. And so, it did—on that very day, in fact. Jonathan Rose, a historian and Senior Economist at the Federal Reserve Bank of Chicago, has published an eye-opening inquiry into the historical parallels of the runs on Silicon Valley Bank, Silvergate, Signature Bank, and First Republic in a recent article in the academic journal Economic Synopses. His research paints a startling picture on the scope of those runs, placing them in the context of the history of the largest depositor runs in the U.S. banking system between 1934 and 2021. Rose found that the most destructive bank runs in the period following the Great Depression of the 1930s and before 2022 have been the runs on Continental Illinois and Trust (which commenced on 7 May 1984), Washington Mutual (8 September 2008) and Wachovia (15 September 2008). They saw a deposit outflows of 30%, 10.1%, and 4.4% of total deposits, respectively. To note, the run on Continental Illinois in 1984 was already a largely electronic one due to automated wire transfers, and thus “lightning fast.” The outflow from Silvergate was 52% (during Q4 2022); on SVB it was 87% (10 March 2023 + expected during the next day); on Signature it was 29% (10 March 2023 + expected next day); and on First Republic it was 57% (approx. between 10-24 March). These are truly historical figures, matching those seen during the Great Depression. Many authorities and analysts are currently pondering what this all means for banks, their deposits, and countries in general, and where we could be heading. In this essay, I will explain why authorities have caused the ongoing crisis, why is it likely to get much worse, and what this implies for the world. I will conclude with a bit of unsolicited advice on how a certain category of countries, which includes Azerbaijan, can prepare and even benefit from its effects.
- Topic:
- Economics, Great Depression, Banking, and Economic Crisis
- Political Geography:
- Azerbaijan and Global Focus