How digitization is changing finance
In a recent telephone interview with Mortgage Professional America, Emmanuel Daniel detailed the differences from the past that allow a bank to collapse with dizzying speed and shocking spectacle. His latest book entitledThe great transition: the personalization of finance has arrivedhas garnered rave reviews for his prescient insights into the personalization of finance and its risks.
“What has modified – and continues to vary – the character of banking within the United States and world wide is as a result of several latest aspects,” Daniel said. “The first factor is the digitization of finance, the bank panic is immediate, immediate and absolute. In the old days, a bank panic meant hundreds of individuals queuing outside the bank, and the bank still closed at 5 p.m. sharp,” he said.
He added that even after the bank closes, it would take days for the dust to settle to evaluate the extent of deposits left intact. “Today, any customer can simply go browsing and request a withdrawal of their deposits. Technology itself is a dimension that influences how banks respond and what options are open to them.”
How do banks measure liquidity?
There can also be the difficulty of liquidity, which adds to the sheer spectacle of the collapse: “The amount of liquidity that the central bank put into the system, followed by the post-COVID recovery program and so forth, caused an incredible accumulation of deposits within the banking system,” Daniel said. “In the past, when the bank had access to an incredible amount of deposits, it actually worked well for the banks. In the US system, there may be a history of banks that redirected the assets they received into high-yield assets,” he said, pointing to treasury bonds and mortgage-backed securities as examples.
Ironically, recently failing banks used much of the identical tactic, Daniel added: “In a way, what banks have been doing isn’t any different from what they’ve all the time been doing.”
