One lesson of the Silicon Valley Bank failure is that some bank deposits are better than others. Lots of US regional banks were doing more or less the same thing in 2021: They were taking money from depositors, promising to give it back whenever the depositors wanted, paying 0% interest on those deposits, and investing the money in long-term bonds at like 2% interest. Then interest rates went up and those bonds were worth much less than they used to be. If the depositors all asked for their money back at the same time, as is their right, the banks would have to sell the bonds at a big loss, leaving them without enough money to pay depositors. On the other hand if all the depositors kept their money in the bank as rates went up, without even demanding higher interest rates on their checking accounts, then the bank would be fine. The bank would be great, even: As rates go up, the bank will earn more on its assets, but it won’t have to pay more to its sleepy and undemanding depositors. A bank with sleepy depositors would do well, a bank with antsy depositors would go bust, even if their investments were the same.
One way to say this is that a bank with sleepy and undemanding depositors is much more valuable than a bank with nervous and demanding depositors, but it is hard to measure that. In fact bank regulation does try to measure that; it knows that some types of deposits are flightier than others, and liquidity regulations require banks to have more cash to cover flighty deposits than stable ones. (For instance, deposits that are not covered by deposit insurance are flightier than ones that are.) But it is a crude and imprecise approach to a basically social set of questions: What are your depositors like? Do they talk to each other? When they get together, do they tend to calm each other down or work each other up?
