A Republican senator says technological advancements are exposing the fragility of the US banking system.
In a new CNBC interview, Louisiana Senator John Kennedy say banks today are no different than the scheme of Italian con artist Charles Ponzi over 100 years ago.
According to Kennedy, banks can only survive on trust, but not on any other fundamental property.
“I just know the world is different now with technology and the way we can communicate so quickly. Banks exist on the basis of trust. They are really just, don’t take this the wrong way, sophisticated Ponzi schemes, and they work when everyone trusts each other.
You get on that iPhone and start sending text messages and you have the herd panic and stampede, everyone can go out of business. It’s breathtaking.”
Kennedy’s remarks come as several regional banks witnessed their share prices falling off a cliff last week.
PacWest Bancorp, which provides corporate banking and treasury management to small and medium-sized businesses, saw its share price plunge 44% over the past week.
Western Alliance Bancorporation (WAL), an Arizona-based regional bank, also fell sharply, losing nearly 27% of its share price over the same period. Metropolitan Bank Holding Corp (MCB) is also down nearly 30% this week, despite beating earnings expectations several weeks ago.
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