Schrödinger's Bank

How can a bank move from operating normally to collapsing within a matter of hours? The failure of Silicon Valley Bank in 2023 showed that a modern bank run can develop at extraordinary speed. In a single day, customers attempted to withdraw tens of billions of dollars, encouraged by messages, news reports, and conversations spreading rapidly through digital networks.

The main purpose of this paper is to explain why collective fear can produce the very outcome that people are afraid of. To do so, it uses the idea of quantum superposition as both a metaphor and a mathematical framework.

The central idea is that before a panic begins, a bank may face two possible outcomes: survival or failure. The result partly depends on what its customers decide to do. When a rumor, negative announcement, or viral post appears, many people begin watching the bank and making decisions at the same time. When enough depositors try to withdraw their money, the original concern can become a real crisis.

The paper argues that observation is not always passive. In certain situations, public attention changes the system being observed. Social media, digital banking, and instant transfers allow thousands of people to react simultaneously, turning a gradual and manageable withdrawal process into a massive outflow of deposits.

The conclusion is that financial stability depends on more than the assets held by a bank. It also depends on confidence, the speed at which information travels, and the degree of coordination among depositors. Deposit insurance is especially important because it reduces the incentive to withdraw money at the first sign of trouble. In an economy where everyone can react at once, protecting confidence before panic begins is an essential part of financial policy. Read the full paper on SSRN.