Great Britain exterminated wolves over a century ago by hunting them to the maximum because they ate sheep and sometimes people. As a result, the deer that did not have a predator multiplied to the maximum, switched to overgrazing, and biodiversity was destroyed. Now there are calls for the reintroduction of wolves and this is a lesson for them. banks.

Curb one pest and perhaps promote another. See how this story relates to her fall Credit Suisse, as well as her Silicon Valley Bank (SVB). Fifteen years ago, it became clear that the habit of financial institutions to freely finance themselves with unstable short-term loans from investors is problematic.

This brought Lehman Brothers and Northern Rock to the bottom. Thus, regulators have revised their toolkit, encouraging banks to rely on supposedly reliable sources of cash, such as money held in household and company accounts.

The old problems of banks have been replaced by overdependence on deposits of private and corporate clients.

Clients of the high-tech Silicon Valley Bank were trying to withdraw $42 billion in just one day. Credit Suisse’s deposits have fallen by more than a third in the last three months of 2022 as anxious clients of its asset management division left. Credit institutions do not solve the problems of 2008, but have replaced them with an over-focus on retail and corporate clients, who can also withdraw cash in minutes.

Regulators will rethink their toolbox, but this time the old pest control methods won’t work. After the last crisis, the Basel Rules required banks to have enough liquid assets to cover all of their wholesale funding, as if every penny could be withdrawn immediately.

Corporate deposits in excess of national deposit guarantees typically only require 40% in liquid assets and 10% if the client has “large net worth”. It would make sense to increase these coverage rates to 100% or something similar.

This is equivalent to the slaughter of deer in the UK countryside. If regulators start requiring banks to back these deposits 100% in cash instead of loans, the amount of cash they have to hold will leave them with little ability to lend to the economy.