著者ウェブ・スミス

Within three years of the bank’s founding, the first to ever issue banknotes, its illiquidity issue became the first of many examples throughout history. A greater irony is that just 1,213 kilometers away from the Stockholms Banco, the first speculative bubble in history came and went: Tulipomania. Speculative bubbles and bank runs share similar dynamics.

A bank run occurs when a large number of customers withdraw their money from a bank at the same time, usually out of fear that the bank may become insolvent or fail. This phenomenon has a long and complex history, dating back centuries and occurring in many different forms around the world.

Though both events occurred within 25 years, the Stockholms Banco fiasco is commonly associated with current events. Whereas tulipomania was forgotten (outside of niche financial circles), the origin of the bank run was not. Stockholms Banco was a Swedish bank established in 1656 by a Latvian-born entrepreneur and financier named Johan Palmstruch. He is credited with the introduction of paper money to Europe and it quickly became the largest bank in the country. In 1668, however, the bank experienced a major crisis when it was discovered that its reserves were insufficient to cover the notes it had issued.

A recent report by Economic Times shares the notion that many bank runs are just self-fulfilling prophecies. The article began with perhaps the first in history.

Since his deposits were short-term and loans long-term, he began issuing credit notes to customers which could be exchanged for metal coins. That is said to be the first paper money to be used in Europe. His bank ran into a problem when Sweden issued lighter copper coins and a large number of his customers lined up to withdraw their old, heavier copper coins which were worth more in metal. That led to the collapse of his bank. He was jailed and his bank was later transferred to the Swedish government

Sound familiar? As news of the bank’s troubles spread, customers began to demand their deposits back in the form of gold and silver coins, which the bank was unable to provide. This led to a mass withdrawal of deposits, as customers lost faith in the bank’s ability to honor its obligations. The crisis at Stockholms Banco was eventually resolved through a combination of government intervention and private sector support. The Swedish government stepped in to provide additional funds to the bank, and wealthy merchants and other individuals also lent money to the bank to help it meet its obligations.

While Stockholms Banco is often cited as an early example of a bank run, some argue that similar events had occurred earlier in history. For example, there is evidence to suggest that similar crises occurred in the Italian banking system as far back as the 14th century. It remains an important case study in the history of financial crises and the role of government and private sector actors in resolving them. The lessons learned from the crisis at Stockholms Banco have helped shape the development of modern banking systems and regulations, and continue to be relevant to financial policymakers and practitioners today. However, in the United States where regulation is a sine wave of sorts (more and less, more and less), periods of bank runs happen more often than they should.

A Western History: 1866, 1907, 1929, 2008, 2023

Samuel Gurney of Overend, Gurney and Company:

When a panic exists a man does not ask himself what he can get for his bank-notes, or whether he shall lose one or two per cent by selling his exchequer bills, or three per cent. If he is under the influence of alarm he does not care for the profit or loss, but makes himself safe and allows the rest of the world to do as they please.

In the 19th century, the rise of modern banking systems in Europe and America brought about new forms of bank runs. One of the most famous of these occurred in 1866, when the Overend, Gurney & Company bank in London, which was considered one of the most stable and prestigious financial institutions of its time, suddenly collapsed. This is event was as (or more) impactful on England’s economy as the Bear Stearns collapse was on the American economy. The failure of Overend, Gurney and Co. inspired writers like Walter Bagehot who frequently referred to the Overend collapse in his 1873 book Lombard Street.

The good times too of high price almost always engender much fraud. All people are most credulous when they are most happy; and when much money has just been made, when some people are really making it, when most people think they are making it, there is a happy opportunity for ingenious mendacity.

Unsurprisingly, Karl Marx often cited the Overend collapse as one of the many negatives associated with capitalism. And like the Bear Stearns collapse, no one at Overend was held legally accountable. The bank had been heavily involved in risky investments, and when a series of financial crises hit, it was unable to meet its obligations. As news of the bank’s troubles spread,the bank run ensued.

During the summer of 1907, two small-time Wall Street bankers conjured up a plan to acquire the stock of the United Copper Company at a cheap price and drive up its price. The scheme failed, and the company’s stock plunged.

The Panic of 1907 is often cited as one of the most significant bank runs in the country’s history. This crisis was triggered by a combination of factors, including a sharp decline in the stock market and rumors of impending financial failures. As customers began to withdraw their money from banks, the government intervened to restore confidence and prevent further runs. One of the most famous interventions was made by J.P. Morgan, who personally lent millions of dollars to several banks in order to prevent them from failing.

After The Panic, there was unanimous agreement around the need for a central bank. Morgan and his peers wanted a private central bank and progressives wanted one under the control of the federal government. President Woodrow Wilson established the Federal Reserve in 1913 after agreeing with the progressives.

The Great Depression of the 1930s brought about a new wave of bank runs as customers lost faith in the banking system as a whole. Banks at the time were highly leveraged and often made riskier-than-typical loans. And when the stock market crashed in 1929, many banks were unable to meet the demands of their customers. As news of bank failures spread, customers across the country began to withdraw their money, leading to a mass exodus of deposits from the banking system. This crisis eventually led to the creation of the Federal Deposit Insurance Corporation (FDIC), which guaranteed deposits in participating banks up to a certain amount and helped restore confidence in the banking system.

On June 16, 1933, President Theodore Roosevelt signed the Banking Act that created the FDIC. In 1934, Congress officially insured deposits up to $2,500 ($50,641 adjusted for inflation).

Since the Great Depression, bank runs have become less common in developed countries, thanks in part to increased regulation and the establishment of deposit insurance programs. But in recent years, the rise of digital banking and fintech startups has also raised new concerns about the potential for bank runs in the event of a cyberattack or other disruption to the financial system. Additionally, regulation is along its down cycle in that proverbial sine wave analogy. In a recent deep dive on the FTX fiasco, I explained:

Crypto is largely unregulated, and investments were essentially bids on digital-first infrastructure and the idea that it could replace more traditional (and to some archaic) ways of building and transferring wealth. At the same time, the parallels between this crypto crash and the 2008 crash are strikingly similar.

In March 2008, a bank run began on Bear Stearns, a bank that financed long-term investments by selling “asset backed commercial paper” (short-maturity bonds), making it vulnerable to panic. Industry rivals began a public campaign against Bear Stearns, citing a lack of ability to make good on obligations. In just two days, a capital base of $17 billion was down to $2 billion. The bank filed for bankruptcy the next day. Wilson’s Federal Reserve decided to lend money to Bear Stearns while JPMorgan Chase acquired the bank as part of a government-sponsored bailout. In the coming weeks and months, 25 banks failed. This includes Washington Mutual and IndyMac. 

And here is where several of the largest banks stand with respect to exposure to bank runs.

Each era of bank run resulted in some form of government regulation. 1907 led to The Federal Reserve, 1929 birthed the FDIC, and 2008 led to the Dodd-Frank Act. Signed in 2010, the measure was set up to increase regulation. But in 2018, in an effort to bolster activity in the sector: President Trump scaled bank some of the landmark act, reducing some of the regulations and requisite “stress tests” on local and regional banks. Objectively speaking, this directly influenced 2023’s bank run on Silicon Valley Bank. By Politifact:

Silicon Valley Bank CEO Greg Becker was among those who sought lighter regulations for smaller banks as the rollback bill was being crafted. At the time the bill was passed, Silicon Valley Bank had about $40 billion in assets.

SVB’s customers withdrew over $42 billion on the first day of the bank run, reaching a withdrawal volume of $4.2 billion per hour. Previously, the largest bank run in history was 2008’s run on Washington Mutual, totaling $16.7 billion over 10 days.

The history of the bank run is a complex and multifaceted one, spanning centuries and continents. As the banking industry continues to evolve and new risks emerge, it is important for regulators and financial institutions to learn from the past and to consider the origins of America’s banking regulations. It’s also important to understand the history and its precedents. History suggests that the resulting regulations with return us to stress tests on smaller banks and, perhaps, an increase to $1,000,000 or more in FDIC coverage.

By Web Smith | Art by Alex Remy and Christina Williams