The Growing Risk of Bank Runs in the Digital Age

Technology is making it easier for bank runs to happen, according to Andrew Hauser, an executive director at the Bank of England. He mentioned the bank runs that occurred in the United States earlier this year as an example. Hauser believes this is one of the biggest challenges facing central banks today. Another challenge is determining the appropriate level for central bank balance sheets as inflation returns to target. The third challenge is ensuring the stability of the financial system as liquidity shocks become more common. Hauser emphasized the importance of central bank reserves in addressing these challenges. The Bank of England is increasing its reserves to maintain control and stability. They are also working with others to explore alternative liquidity sources and improve firms’ liquidity management. In March, there were bank runs at Silvergate Capital, Silicon Valley Bank, and Signature Bank. First Republic Bank also experienced a bank run in April and received support from 11 other banks. They are now taking steps to strengthen their business.