in this thinking. Large banks were no less likely to fail than smaller
ones. What’s more, these big firms were disproportionally important
to the stability of the financial network. ‘What matters is not a bank’s
closeness to the edge of the cliff,’ May and Haldane wrote in 2011, ‘it
is the extent of the fall.’[91]
T went under, Financial Times journalist John
Authers visited a Manhattan branch of Citibank during his lunch
break. He wanted to move some cash out of his account. Some of his
money was covered by government deposit insurance, but only up to
a limit; if Citibank collapsed too, he’d lose the rest. He wasn’t the only
one who’d had this idea. ‘At Citi, I found a long queue, all well-
dressed Wall Streeters,’ he later wrote.[92] ‘They were doing the
same as me.’ The bank staff helped him open additional accounts in
the name of his wife and children, reducing his risk. Authers was
shocked to discover they’d been doing this all morning. ‘I was finding
it a little hard to breathe. There was a bank run happening, in New
York’s financial district. The people panicking were the Wall Streeters
who best understood what was going on.’ Should he report what was
happening? Given the severity of the crisis, Authers decided it would
only make the situation worse. ‘Such a story on the FT’s front page
might have been enough to push the system over the edge.’ His
counterparts at other newspapers came to the same conclusion, and
the news went uncovered.
The analogy between financial and biological contagion is a useful
starting point, but there is one situation it doesn’t cover. To get
infected during a disease outbreak, a person needs to be exposed to
the pathogen. Financial contagion can also spread through tangible
exposures, like a loan between banks or an investment in the same
asset as someone else. The difference with finance is that firms don’t
always need a direct exposure to fall ill. ‘There’s one way this is
unlike any other network we’ve dealt with,’ said Nim Arinaminpathy.
‘You can have apparently healthy institutions come crashing down.’ If
the public believes that a bank will go under, they may try to withdraw
their money all at once, which would sink even a healthy bank.
Likewise, when banks lose confidence in the financial system – as