Mobile apps that facilitated the rapid withdrawal of billions of dollars of deposits in just hours at Silicon Valley Bank highlight a new risk for banks’ liquidity planning, according to a top US regulator.
(Bloomberg) — Mobile apps that facilitated the rapid withdrawal of billions of dollars of deposits in just hours at Silicon Valley Bank highlight a new risk for banks’ liquidity planning, according to a top US regulator.
To comply with current regulations, banks assume that retail deposits will run off at a rate of roughly 5% over a 30-day period, but customers’ ability to instantly move their money means outflows could be much higher in the future, Acting Comptroller of the Currency Michael Hsu said Wednesday at a summit in Raleigh, North Carolina, hosted by FDX, a nonprofit that creates standards for financial-data sharing.
“Already, there is a sense that online and mobile banking may have facilitated unusually large and rapid outflows of wholesale deposits at Silicon Valley Bank and Signature Bank last month,” Hsu said in prepared remarks. While being able to quickly and easily move their bank accounts “will be empowering for consumers, in isolation this would likely increase the liquidity risk of retail deposits for banks.”
SVB Financial Group’s Silicon Valley Bank collapsed last month after venture capital clients, spooked by social media posts and public message boards, withdrew tens of billions of dollars in deposits in mere hours. Signature Bank collapsed just days later after facing rapid withdrawals of its own. Amid the turmoil, financial stocks have careened wildly.
Banks and financial-technology providers have spent years discussing the rise of so-called open banking in the US, which would make it easier for consumers to port their financial data over to fintech apps or rival banks. Proponents say open banking will improve and preserve competition in financial services, while opponents say it could heighten security risks.
The Office of the Comptroller of the Currency has third-party risk-management expectations that govern those relationships, Hsu said.
“But some evolution and refinement of those expectations may be needed as open banking and the fintech landscape evolve,” he said.
Separately, Hsu warned that technology giants such as Apple Inc., Alphabet Inc.’s Google and Amazon.com Inc. have continued to push into financial services in recent years. Hsu said this warrants “careful monitoring” from regulators, who have long sought to preserve the separation between banking and commerce.
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