New paper: "Rushing to Judgment and the Banking Crisis of 2023"
With Jonathan Rose
In a new Chicago Fed paper, Jonathan Rose and I review the standard account of the Banking Crisis of 2023. We highlight seven facts that depart from the standard account of the crisis that has developed:
Silvergate Bank, rather than SVB, was the first bank to fail and the first bank to have a run.
Bank business models that materially focused on the venture capital and crypto sectors were at the center of the crisis.
Unrealized losses and uninsured deposits are inadequate explanations of which banks experienced runs in 2023.
While the crisis affected midsize “regional” banks in general, the most severely impacted banks were geographically clustered around the tech- and crypto-heavy West Coast.
Affected banks had been under considerable prior market pressure in 2022 and were not suddenly scrutinized for the first time in March 2023.
The historically unprecedented speed of the 2023 bank runs is not well explained by social media or digital banking applications.
The crypto and VC sectors had a special role in triggering the 2023 runs because the affected banks had business models focused on them. Once the runs were initiated, other large, sophisticated depositors ran with roughly the same speed and severity.
Read the full paper, which concludes with its implications for the post-2023 policy reform debate, here: https://www.chicagofed.org/publications/working-papers/2025/2025-04
Interesting, but does not explain why these banks were trying to do term transformation by using fixed rate long term assets and why prudential regulators allowed it.
Great points, thank you!