How the digital era helped speed up bank runs

 Digital Bank runs can and do happen very fast because money ofcourse is digital, or electronic these days. In TFE or Transfinancial Economics this point is realized....RS

Economy Updated on Mar 15, 2023 5:24 PM EDT — Published on Mar 15, 2023 4:46 PM EDT

NEW YORK (AP) — A bank run conjures images of “It’s a Wonderful Life,” with anxious customers crammed shoulder to shoulder, desperately pleading with a harried George Bailey to hand over their money.

The failure of Silicon Valley Bank last week had the panic but few other similarities, instead taking place on Twitter, message boards, mobile phones and bank websites.

What made the failure of Silicon Valley Bank unique compared to past failures of large banks was how quickly it collapsed. Last Wednesday afternoon, the $200 billion bank announced a plan to raise fresh capital; by Friday morning it was insolvent and under government control.

Regulators, policymakers and bankers are looking at the role that digital messaging and social media may have played in the collapse, and whether banks are entering an age when the psychological behavior behind a bank run — mass fear from depositors of losing their savings — may be amplified and go viral quicker than bank officers and regulators can successfully respond.

“It was a bank sprint, not a bank run, and social media played a central role in that,” said Michael Imerman, a professor at the Paul Merage School of Business at the University of California-Irvine.

The Federal Deposit Insurance Corporation estimates that customers withdrew $40 billion — one fifth of Silicon Valley Bank’s deposits — in just a few hours, prompting the agency to shut down the bank before 12 p.m. ET, instead of waiting until the close of business, which is typical operating procedure for regulators when a bank runs short of money.

Some other well-known bank failures, such as IndyMac or Washington Mutual in 2008 or Continental Illinois in the 1980s, only happened after days or weeks of reports indicated those banks faced deep financial difficulties. Then a run occurred and regulators stepped in.

EXPLAINER: What to know about the Silicon Valley Bank collapse

The Silicon Valley Bank run was, in many ways, the first of the digital era. Few depositors lined up at a branch. Instead, they used bank apps and phone calls to access their money in minutes. Venture capitalists and business owners described the early stages of the Silicon Valley run being led by private message boards or Slack channels, where entrepreneurs were encouraged to withdraw their funds.

Silicon Valley Bank also was unique in being almost entirely exposed to one community — the tech industry, venture capital and startups. When this close-knit community of depositors talked to one another — using digital channels to do so quickly — the bank likely became more vulnerable to rumors and a run. This was a risk outside of the growth of social media, industry experts said.

Sam Altman, CEO of Open AI, tweeted: “the speed of the world has changed. things can unwind fast. people talk fast. people move money fast.”

While the withdrawals initially may have been orderly, they became a full-on bank run Thursday evening after the news spilled over to Twitter that billionaire venture capitalist Peter Thiel had advised his invested companies to close their accounts with Silicon Valley Bank.

“If you are not advising your companies to get the cash out, then you are not doing your job as a Board Member or as a Shareholder. Daily life in startups is risky enough, don’t play with your lifeline…,” wrote Mark Tluszcz, the CEO of Europe-based investment firm Mangrove, on Twitter that Friday morning.

For David Murray, the warning of the first bank run of the social-media age came in a one-sentence email.

He’s a co-founder of Confirm.com, an employee performance management company in San Francisco that had millions of dollars sitting in accounts at Silicon Valley Bank.

Murray received a terse email Thursday morning saying that a run was underway there and recommending everyone pull their money out immediately. The email came from an investor whom Murray hears from so infrequently that his co-founder wondered if it was a phishing attempt or other scam.

ANALYSIS: What Silicon Valley Bank collapse means for the U.S. financial system

After verifying the email and seeing the steep drop in the stock price of the bank’s parent company, SVB Financial, Murray and his colleagues rushed to withdraw the company’s money. Instead of heading to a branch, they quickly pulled up a webpage and logged in. It took a few tries, but they eventually moved every cent to an account at a different bank within a half hour.

Murray could see fear rising among other startup companies in real time.

“We have a trusted network of founders” of startup companies who communicate with each other over Slack, Murray said. “Normally these chat groups are dead. But that day, all the Slack groups were lit up.”

As depicted with the fictional Building and Loan in “ It’s a Wonderful Life,” runs on a bank often start off as a rumor and can quickly devolve to a tribal-like collective fear that sends depositors clamoring for their money, even when nothing is wrong. Because a bank run can happen at random and is hard to stop once started, the U.S. government created the FDIC to stop future bank runs under the premise that depositors’ funds would be insured.

Between 1930 and 1933, during the Great Depression, roughly 9,000 banks failed. Since the FDIC’s creation in 1933, bank runs have become much rarer. According to the FDIC, there were 562 bank failures between 2001 and 2023, with the vast majority of those happening during the 2007-2009 recession.

The entire banking industry is now grappling with the fact that they could be the next target of a social media-fueled bank run. The hive-like behavior is similar to what happened during the 2021 “meme stock” boom where companies were targeted by groups of mostly retail investors, although in that case groups of investors were using social media to push stocks higher.

Silicon Valley Bank’s failure dominated social media platforms for days. Several prominent investors issued bombastic predictions that if the federal government did not step in to make all Silicon Valley Bank depositors whole — both insured and uninsured — there would be more bank runs on Monday.

In the end, Washington capitulated. Under the plan announced by U.S. regulators on Sunday, depositors at Silicon Valley Bank were able to access all their money. A new Federal Reserve program will allow banks to post certain high-quality securities as collateral and borrow from a government emergency fund. Both Treasury and Federal Reserve officials told reporters over the weekend that the programs were created in part due to concerns further bank runs — fueled by social media — could occur.

“The last several days represent a unique incident fueled by misinformation on social media and are not indicative of the health of our industry,” said Lindsey Johnson, president of the Consumer Bankers Association, in a statement.

For policymakers, there doesn’t appear to be any immediate solution. One possibility that’s been around for decades — also depicted in “It’s a Wonderful Life” — is the idea of a bank holiday where regulators close a bank for a few days to allow for cooler heads to prevail.

On Monday after the government stepped in to backstop the banking system, it seemed like a portion of the technology community had become aware of their ability to cause mass panic in finance and should be more careful when posting about the potential health of banks.

“In the age of social media, if you have a big enough platform and yell loud enough about a bank run, you might eventually be correct. Doesn’t make it right,” wrote Logan Bartlett with Redpoint Ventures.

Left: FDIC representatives Luis Mayorga and Igor Fayermark speak with customers outside of the Silicon Valley Bank headquarters in Santa Clara, California, U.S. March 13, 2023. REUTERS/Brittany Hosea-Small

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Go Deeper

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Stan Choe, Associated Press

Smart City

Urban performance currently depends not only on the city's endowment of hard infrastructure ('physical capital'), but also, and increasingly so, on the availability and quality of knowledge communication and social infrastructure ('intellectual capital and social capital'). The latter form of capital is decisive for urban competitiveness. It is against this background that the concept of the smart city has been introduced as a strategic device to encompass modern urban production factors in a common framework and to highlight the growing importance of Information and Communication Technologies (ICTs), social and environmental capital in profiling the competitiveness of cities.^[1] The significance of these two assets - social and environmental capital - itself goes a long way to distinguish smart cities from their more technology-laden counterparts, drawing a clear line between them and what goes under the name of either digital or intelligent cities.
Smart(er) cities have also been used as a marketing concept by companies and by cities.

Contents 1 Definition 2 Policy context 3 Characteristics 3.1 A stage reached in the development of infrastructure 3.2 A strategy for creating a competitive environment 3.3 An approach to inclusive and sustainable cities 4 Wireless sensor networks for smart cities 5 Criticism 6 Examples of use 6.1 Use by cities 6.2 Use by companies 6.3 Projects, conferences and research groups 7 See also 8 References

[edit] Definition

Smart cities can be identified (and ranked) along six main axes or dimensions:^[2]

• a smart economy
• smart mobility
• a smart environment
• smart people
• smart living
• smart governance

These six axes connect with traditional regional and neoclassical theories of urban growth and development. In particular, the axes are based - respectively - on theories of regional competitiveness, transport and ICT economics, natural resources, human and social capital, quality of life, and participation of citizens in the governance of cities.
A city can be defined as ‘smart’ when investments in human and social capital and traditional (transport) and modern (ICT) communication infrastructure fuel sustainable economic development and a high quality of life, with a wise management of natural resources, through participatory action and engagement. (Caragliu et al. 2009)

[edit] Policy context

The concept of the smart city as the next stage in the process of urbanisation has been quite fashionable in the policy arena in recent years, with the aim of drawing a distinction from the terms digital city or intelligent city.^[3] Its main focus is still on the role of ICT infrastructure, but much research has also been carried out on the role of human capital/education, social and relational capital and environmental interest as important drivers of urban growth.
The European Union (EU), in particular, has devoted constant efforts to devising a strategy for achieving urban growth in a smart sense for its metropolitan city-regions.^[4][5] Other international institutions and thinktanks also believe in a wired, ICT-driven form of development. The Intelligent Community Forum produces, for instance, research on the local effects of the worldwide ICT revolution. The OECD and EUROSTAT Oslo Manual^[6] stresses instead the role of innovation in ICT sectors and provides a toolkit to identify consistent indicators, thus shaping a sound framework of analysis for researchers on urban innovation. At a mesoregional level, we observe renewed attention for the role of soft communication infrastructure in determining economic performance.^[7]
The availability and quality of the ICT infrastructure is not the only definition of a smart or intelligent city. Other definitions stress the role of human capital and education and learning in urban development. It has been shown, for example,^[8][9] that the most rapid urban growth rates have been achieved in cities where a high share of educated labour force is available.
Innovation is driven by entrepreneurs who innovate in industries and products which require an increasingly more skilled labour force. Because not all cities are equally successful in investing in human capital, an educated labour force – the 'creative class' ^[10] – is spatially clustering over time. This tendency for cities to diverge in terms of human capital has attracted the attention of researchers and policy makers. It turns out that some cities, which were in the past better endowed with a skilled labour force, have managed to attract more skilled labour, whereas competing cities failed to do so. Policy makers, and in particular European ones, are most likely to attach a consistent weight to spatial homogeneity; in these circumstances the progressive clustering of urban human capital is then a major concern.

[edit] Characteristics

The label smart city is still quite a fuzzy concept and is used in ways that are not always consistent. This section summarises the characteristics of a smart city that most frequently recur in discussions of the topic.

[edit] A stage reached in the development of infrastructure

This usage is centred around the "utilisation of networked infrastructure to improve economic and political efficiency and enable social, cultural and urban development",^[11] where the term infrastructure indicates business services, housing, leisure and lifestyle services, and ICTs (mobile and fixed phones, satellite TVs, computer networks, e-commerce, internet services), and brings to the forefront the idea of a wired city as the main development model and of connectivity as the source of growth.^[3]
The critical role of high-tech and creative industries in long-run urban growth is stressed. This factor, along with soft infrastructure ("knowledge networks, voluntary organisations, crime-free environments, after dark entertainment economy"),^[11] is the core of Richard Florida's research.^[10]
The basic idea is that "creative occupations are growing and firms now orient themselves to attract 'the creative'". While the presence of a creative and skilled workforce does not guarantee urban performance, in a knowledge-intensive and increasingly globalised economy, these factors will determine increasingly the success of cities.^[12]

[edit] A strategy for creating a competitive environment

Here, a ‘smart city’ is taken to be one that takes advantages of the opportunities ICTs offer to increase local prosperity and competitiveness - an approach which implies integrated urban development based on multi-actor, multi-sector, and multi-level perspectives.^[5][13]
This leads to an "underlying emphasis on business-led urban development",^[11] creating business-friendly cities with the aim of attracting new businesses. The data shows that business-oriented cities are indeed among those with a satisfactory socio-economic performance. To this end, cities may design business parks as ‘Smart Cities’: Kochi, Malta, Dubai are all examples.
Local intelligence capacity is intrinsically linked to that of the knowledge-based economy where innovation and technology are main drivers of growth^[14] and the collective community intelligence, which underlines capacity and networks as main drivers of a community's success.^[15] This requires a planning paradigm pertinent for urban-regional development and innovation management, similar to the related concept of ‘intelligent cities’ (or communities, clusters, districts and multi-cluster territories). By developing sector-focused, cluster-based or more complex intelligent city strategies, territories can set in motion innovation mechanisms of global dimensions and enhance substantially their innovation systems.^[4]

[edit] An approach to inclusive and sustainable cities

An alternative approach gives profound attention to the role of social and relational capital in urban development. Here, a smart city will be a city whose community has learned to learn, adapt and innovate.^[16] This can include a strong focus on the aim to achieve the social inclusion of various urban residents in public services (e.g. Southampton's smart card)^[17] and emphasis on citizen participation in co-design.^{[18] [19]}
Sustainability is seen here as a major strategic component of smart cities. The move towards social sustainability can be seen in the integration of e-participation techniques such as online consultation and deliberation over proposed service changes to support the participation of users as citizens in the democratisation of decisions taken about future levels of provision.^[20]
Environmental sustainability is important in a world where resources are scarce, and where cities are increasingly basing their development and wealth on tourism and natural resources: their exploitation must guarantee the safe and renewable use of natural heritage. This last point is linked to business led development, because the wise balance of growth-enhancing measures, on the one hand, and the protection of weak links, on the other, is a cornerstone for sustainable urban development.
People need to be able to use the technology in order to benefit from it (see absorptive capacity). When social and relational issues are not properly taken into account, social polarisation may arise as a result. The debate on the possible class inequality effects of policies oriented towards creating smart cities is, however, still not resolved.^[21]
It is the issues raised by sustainability that can determine the very notion of a ‘smart’ city in contrast to a digital or an intelligent city.^[1]

[edit] Wireless sensor networks for smart cities

Wireless sensor networks is a specific technology that helps to create Smart Cities. The aim is to create a distributed network of intelligent sensor nodes which can measure many parameters for a more efficient management of the city.^[22] The data is delivered wirelessly and in real-time to the citizens or the appropriate authorities.
For example, citizens can monitor the pollution concentration in each street of the city or they can get automatic alarms when the radiation level rises a certain level. It is also possible for the authorities to optimize the irrigation of parks or the lighting of the city. Water leaks can be easily detected or noise maps can be obtained. Rubbish bins can send an alarm when they are close to being full.
Vehicle traffic can be monitored in order to modify the city lights in a dynamic way.^[23] Traffic can be reduced with systems that detect where the nearest available parking slot is.^[24] Motorists get timely information so they can locate a free parking slot quickly, saving time and fuel. This information can reduce traffic jams and pollution improve the quality of life.

[edit] Criticism

The main arguments against the superficial use of this concept in the policy arena are:^[11]

• A bias in strategic interest may lead to ignoring alternative avenues of promising urban development.
• The focus of the concept of smart city may lead to an underestimation of the possible negative effects of the development of the new technological and networked infrastructures needed for a city to be smart.^[25]

The idea of neo-liberal urban spaces has been criticised for the potential risks associated with putting an excessive weight on economic values as the sole driver of urban development. Among these possible development patterns, policy makers would better consider those that depend not only on a business-led model.
As a globalized business model is based on capital mobility, following a business-oriented model may result in a losing long term strategy: "The 'spatial fix' inevitably means that mobile capital can often 'write its own deals' to come to town, only to move on when it receives a better deal elsewhere. This is no less true for the smart city than it was for the industrial, [or] manufacturing city".^[11]

[edit] Examples of use

The term 'smart city' has been used in a variety of instances, including the following examples.

[edit] Use by cities

• Amsterdam Smart City
• Cairo Smart Village
• Dubai SmartCity
• Dubai Internet City
• City of Edinburgh Council for their vision and action plan for e-Government implementation and modernisation in conjunction with BT
• Kochi SmartCity business park
• Lyon Smart City
• Smart City Málaga This city initiative in cooperation with the Spanish electric company Endesa has 6 main areas of focus: 1. Intelligent Mobility --This year Malaga will host 200 electric vehicles through a joint venture with the Japanese New Energy and Industrial Technology Development Organization (NEDO) 2. Smart Energy Grids, 3. eGovernment, 4. Smart Buildings, 5. Environmental Intelligence, 6. Intelligent Services.
• Malta SmartCity business park
• SmartSantander, which probably is the biggest Wireless Sensor Network in the world. For the moment, 1100 wireless sensor devices by Libelium are installed, 400 of them measuring parking slots and 700 controlling ambiental parameters like noise, carbon monoxide, temperature or sunlight.
• Songdo International Business District
• Southampton City Council use it to describe their use of smart cards as part of integrated service provision (e.g., bus passes) [1]
• Yokohama Smart City

[edit] Use by companies

• Schneider Electric[2] provides integrated solutions combining state-of-the-art hardware, software, and services in all key areas of a Smart City.
• Thales Group[3] provides advanced solutions for inter modal urban mobility and security that provides smart services to citizens, green development and safety.
• IBM as an aspect of its Smarter Planet campaign – exploiting the increasingly instrumented, inter-connected and intelligent nature of urban systems to lead to a ‘smarter’ use of resources
• Oracle Corporation: Creating a Citywide Nervous System with the Oracle City Platform (January 2013)
• Siemens have also used the term in their Stadt der Zukunft/Smart City project (2004)
• Living Planit a smart city built from scratch, an urban laboratory soon to be built in Northern Portugal: [4]
• Wonderware are developing software platforms to support the role out of Smart Cities: [5]

[edit] Projects, conferences and research groups

• Smart Cities For Sustainable Growth
• The Smart Cities INTERREG project.
• The Smart Cities Future Conferences in Salford, Greater Manchester, to create conversations that tap into the unrealised potential of open innovation and effective collaboration between universities, industry and government
• EuropeanSmartCities, a project which investigated the reasons behind why medium-sized cities, which have to cope with competition of the larger metropolises on corresponding issues, appear to be less well equipped in terms of critical mass, resources and organizing capacity.
• MESH Cities a project researching and distributing information about the future of smart, livable cities.
• Smart Cities research group at MIT
• URENIO [6] Research Unit at Aristotle University of Thessaloniki, offering also a watch on intelligent city research and planning
• Meeting of the Minds an annual conference for leading innovative urban thinkers that aims to illuminate specific solutions and smart strategies that make it possible to accelerate the emergence of sustainable cities around the globe.

[edit] See also

• Cluster development
• The Creative City
• Digital city
• Intelligent city
• Knowledge Economy
• Knowledge spillover
• Mesh cities
• Spatial intelligence of cities
• Sustainable urban infrastructure
• Triple helix
• Ubiquitous City

[edit] References

1. ^ ^{a b} Caragliu, A; Del Bo, C. & Nijkamp, P (2009). "Smart cities in Europe". Serie Research Memoranda 0048 (VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics). http://ideas.repec.org/p/dgr/vuarem/2009-48.html.
2. ^ Giffinger, Rudolf; Christian Fertner, Hans Kramar, Robert Kalasek, Nataša Pichler-Milanovic, Evert Meijers (2007). "Smart cities – Ranking of European medium-sized cities". http://www.smart-cities.eu/. Vienna: Centre of Regional Science. http://www.smart-cities.eu/download/smart_cities_final_report.pdf. Retrieved 2009-11-11.
3. ^ ^{a b} Komninos Nicos (2002). Intelligent cities: innovation, knowledge systems and digital spaces. London: Spon Press.
4. ^ ^{a b} Komninos, Nicos (2009). "Intelligent cities: towards interactive and global innovation environments". International Journal of Innovation and Regional Development (Inderscience Publishers) 1 (4): 337–355(19).
5. ^ ^{a b} Paskaleva, K (25 January 2009). "Enabling the smart city:The progress of e-city governance in Europe". International Journal of Innovation and Regional Development 1 (4): 405–422(18).
6. ^ OECD – EUROSTAT (2005). Oslo Manual. Paris: OECD - Statistical Office of the European Communities.
7. ^ Del Bo, C.; Florio, M. (2008). "Infrastructure and growth in the European Union: an empirical analysis at the regional level in a spatial framework". Departmental Working Papers 2008-37 (Milan: University of Milan, Department of Economics).
8. ^ Berry, C. R.; Glaeser, E.L. (2005). "The divergence of human capital levels across cities". Papers in Regional Science 84 (3): 407–444.
9. ^ Glaeser, E.L; Berry, C. R. (2006). "Why are smart places getting smarter?". Taubman Cente Policy Brief (Cambridge MA: Taubman Centre) 2006-2.
10. ^ ^{a b} Florida, R. L. (2009). "Class and Well-Being". http://www.creativeclass.com/creative_class/2009/03/17/class-and-well-being/. Retrieved 17 March 2009,7:38am EDT.
11. ^ ^{a b c d e} Hollands, R. G (2008). "Will the real smart city please stand up?". City 12 (3): 303–320.
12. ^ Nijkamp, P. (2008). "E pluribus unum". Research Memorandum, Faculty of Economics (Amsterdam: VU University Amsterdam).
13. ^ Odendal, Nancy (November 2003). "Information and communication technology and local governance: understanding the difference between cities in developed and emerging economies". Computers, Environment and Urban Systems 27 (6): 585–607.
14. ^ Torres, L; Pina, V. and Sonia, R. (2005). "E-government and the transformation of public administrations in EU countries: Beyond NPM or just a second wave of reforms?". Online Information Review 29 (5): 531–553.
15. ^ Baron, S; Field, J. and Schuller, T (2000). Social capital: Critical perspective. Oxford University Press.
16. ^ A, Coe; Paquet, G. and Roy, J. (2001). "E-governance and smart communities: a social learning challenge". Social Science Computer Review 19 (1): 80–93.
17. ^ Southampton City Council (2006). "Southampton Smartcities Card". http://www.southampton.gov.uk/living/smartcities/. Retrieved 12 November 2009.
18. ^ Deakin, M (2007). "From city of bits to e-topia: taking the thesis on digitally-inclusive regeneration full circle". Journal of Urban Technology 14 (3): 131–143.
19. ^ Deakin, M; Allwinkle, S (2007). "Urban regeneration and sustainable communities: the role networks, innovation and creativity in building successful partnerships". Journal of Urban Technology 14 (1): 77–91.
20. ^ Deakin, M (2010). Reddick, C. ed. "Review of City Portals: The Transformation of Service Provision under the Democratization of the Fourth Phase". Politics, Democracy and E-Government: Participation and Service Delivery (Hershey: IGI Publishing).
21. ^ Poelhekke, S (2006). "Do Amenities and Diversity Encourage City Growth? A Link Through Skilled Labor". Economics Working Papers (San Domenico di Fiesole, Italy: European University Institute) ECO2006/10.
22. ^ Asín, Alicia;Smart Cities from Libelium allows systems integrators to monitor noise, pollution, structural health and waste management
23. ^ Vehicle Traffic Monitoring Platform with Bluetooth over ZigBee
24. ^ Gascón, David; Asín, Alicia;Smart Sensor Parking Platform enables city motorists save time and fuel
25. ^ On this topic, see also Graham, S.; Marvin, S. (1996). Telecommunications and the city: electronic spaces, urban place. London: Routledge.

v t e Ambient intelligence Concepts Context awareness Internet of Things Object hyperlinking Profiling practices Spime Supranet Ubiquitous computing Web of Things Wireless sensor networks Technologies 6LoWPAN ANT+ DASH7 IEEE 802.15.4 Internet 0 Machine to machine Radio-frequency identification Smartdust Tera-play XBee Platforms Arduino Contiki Cosm Electric Imp ioBridge TinyOS Wiring Applications Ambient device CeNSE Connected car Home automation HomeOS Internet refrigerator Nabaztag Smart city Smart TV Smarter Planet Pioneers Kevin Ashton Adam Dunkels Stefano Marzano Donald Norman Roel Pieper Josef Preishuber-Pflügl John Seely Brown Bruce Sterling Mark Weiser Other Ambient Devices AmbieSense Ebbits project IPSO Alliance

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