‘Bank Walks’ Explained: A Study Evaluates How They Could Affect Credit Cryptocurrencies and ICOs

Bank walks are a new phenomenon of liquidity movement identified by analysts, characterized by a slow drift of deposits to take advantage of better performance opportunities. Such “walks” could prove pernicious for the banking system, since they cannot be stopped and have effects on the availability of credit.

What are ‘bank walks’?

Bank walks, so called by analysts for their slowness of action compared to bank runs, are slow movements of deposits caused by the constant search for higher yields. According to an ongoing process study Titled “Destabilizing Digital Banking Rides”, “they cannot be stopped by any deposit insurance and that will undermine the stability of the banking system in the coming months”.

The study highlights that regulators often view deposits as sticky, meaning they are made up of depositors’ savings and do not move frequently. This means that banks can place part of these deposits in Treasury bonds of a certain maturity. However, the study found that these deposits, as a consequence of digital banking, are not as sticky as once believed, and can move freely through the financial system.

This exposes banks to losses from selling Treasury bonds and other instruments ahead of maturity, and banks can only absorb a portion of the losses before defaulting.

Presumed negative effect on credit

Subsequently, it is said that bank walks have a negative effect on the availability of credit. The slow diversion of funds to higher-yielding alternatives, such as money market funds operating the US Federal Reserve’s reverse repo, could lead to a credit crunch. There is currently over $2 trillion in funding that is part of this facility, which was created in 2013.

According to Jim Bianco, president of Bianco Research, a market analysis firm, the upcoming interest rate decision by the US Federal Reserve could be decisive in the further development of a “bank power ride.” On April 9, he fixed:

If the Fed decides to raise rates again next month, money market funds will soon announce yields with a handle of five. That will turn the Bank Walk into a ‘bank powerwalk’.

Bianco added that this deposit outflow is likely to affect small businesses that employ the majority of the country’s workforce, which are better served by small and medium-sized banks.

What do you think about the concept of bank tours and its hypothetical effect on credit? Tell us in the comment section below.

Sergio Goschenko

Sergio is a cryptocurrency journalist based in Venezuela. He describes himself as someone who was late to the game, entering the cryptosphere when the price spike occurred in December 2017. With a background in computer engineering, living in Venezuela and being impacted by the rise of cryptocurrencies on a societal level, offers a different point of view. about the success of cryptocurrencies and how he helps the unbanked and underserved.

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