On 23 October 2024, the Financial Stability Board (FSB) published a report on depositor behaviour and interest rate and liquidity risks in the financial system, drawing on lessons from the March 2023 banking turmoil.

In the report the FSB summarises its main findings from its work over the past year to:

  • Assess vulnerabilities in the global financial system from the intersection of solvency and liquidity risks in an environment of higher interest rates.
  • Investigate the deposit runs, including the role of technology, social media and interest rates on depositor behaviour.
  • Assess how the use of technologies may affect banks’ and authorities’ planning and execution of a resolution.

The FSB finds that the three entity types most vulnerable to the confluence of solvency and liquidity risks at the current juncture are banks, life insurers, and non-bank real estate investors. These entity types typically have a high proportion of interest rate-sensitive assets and liabilities and are affected by higher rates through various solvency and liquidity risk channels.

The FSB also finds that:

  • The speed of the recent deposit runs was very high on average, unprecedented in some cases, but heterogeneous. The three fastest deposit runs in March 2023 had outflows of around 20-30% per day.
  • The scale of recent deposit runs, as a share of pre-run deposits, was large and in the upper range of outflows seen in past runs. The median deposit outflow of the recent runs, at 24% of pre-run deposits, was higher than the median of past deposit runs (10% of deposits).
  • Banks experiencing the runs tended to have an unusually high reliance on uninsured deposits. Outflows from US banks were largely concentrated in uninsured deposits, and these deposits declined in all of the banks affected by runs.
  • The concentration of the deposit base likely played a role in the large outflows. The runs tended to involve banks that had a high concentration of depositors, either by type of client (e.g. high net worth individuals or wealth management clients) or by industry (e.g. start-up firms, technology companies or clients with interests in crypto-assets).

The report also raises certain issues including:

  • The speed of the deposit runs – where the velocity of outflows was significantly higher than has generally been thought likely – has implications for liquidity risk management practices and liquidity supervision.
  • In a few of the recent cases, the speed and magnitude of deposit outflows was so extreme that no amount of bank liquidity would have prevented the failures. This implies that banks, regulators and supervisors need to focus on ways to address the liquidity and solvency vulnerabilities that gave rise to such extreme outflows.
  • Banks and authorities may wish to consider whether monitoring of social media could be helpful as an early warning tool to flag potential stress at a bank or wider turmoil that might affect banks.
  • There are a number of data gaps. For example, there is significantly less information available on bank deposits than bank assets, while the availability of public information on unrealised losses on bank securities portfolios, the level of uninsured deposits, and the number of deposit accounts is uneven across jurisdictions.