Wells Fargo Customers Report Missing Deposits: Fragility of Banks Exposed
Wells Fargo customers have taken to social media to express their concerns about missing money in their accounts. The bank has acknowledged the issue and stated that it is a technical glitch that is being addressed. However, this incident brings to light the underlying fragility of banks and the growing awareness among customers of their inherent vulnerability.
The recent failures of California banks have shed light on two critical factors contributing to the fragility of banks. Firstly, there is often an asset/liability mismatch where banks rely heavily on short-term liabilities, such as customer deposits, to fund long-term assets. When interest rates rise, as seen in the case of the Silicon Valley Bank collapse, and banks start accumulating significant losses, customers tend to withdraw their deposits, further exacerbating the situation.
Secondly, the advent of social media has transformed the speed at which customers receive and share information. Previously, it could take days or even weeks for news of banking issues to circulate, but now customers can quickly discover if their problem is isolated or widespread through social media platforms. Unfortunately for Wells Fargo, the problem wasn’t an isolated incident, and customers were quick to spread the word.
Another concern banks are grappling with is the commercial real estate market. The mainstream media is painting a gloomy picture, predicting potential loan losses for banks operating in this sector. Such losses can significantly impact a bank’s income statement and erode depositor confidence. With the power of social media, this erosion can occur rapidly, as witnessed by the swift spread of information regarding the Wells Fargo issue, prompting the bank to address it publicly.
Banks, including Wells Fargo, are facing challenging times. As the Federal Reserve reduces the money supply, deposits are dwindling, and banks are scrambling to find alternative sources of funding to keep their accounts balanced. This has led to a surge in the Bank Term Funding Program, which experienced record levels last week. Notably, this program doesn’t encompass other loans to banks by the Federal Reserve, nor does it include loans from the Federal Home Loan Bank.
Given these pressing pressures on banks, the recent actions of the Federal Reserve are noteworthy. The Fed has loosened its grip on the economy by allowing M2, a measure of money supply, to bounce back up and raising interest rates by only a quarter percent in its last meeting. However, the question remains: will these measures be sufficient to prevent another bank from facing a similar blow-up?
In conclusion, Wells Fargo’s current predicament sheds light on the fragility of banks and customers’ growing awareness of this vulnerability. Asset/liability mismatches and an increased reliance on short-term liabilities, combined with the power of social media to rapidly disseminate information, are factors contributing to the fragile state of the banking industry. Furthermore, banks are struggling to adapt to challenges in the commercial real estate market. As the Federal Reserve tightens the money supply, banks are searching for new sources of funding, with the Bank Term Funding Program reaching record highs. The actions of the Federal Reserve in response to these pressures may play a crucial role in averting future bank failures.
