Bank Run Contagion Factor
The Formal Definition
A systemic financial risk indicator measuring the speed at which uninsured deposit flight at one distressed financial institution triggers correlated panic withdrawals across peer institutions with similar asset-liability mismatches and unrealized balance-sheet bond losses.
Contagion Vulnerability Index = (Uninsured Deposit Volume / Total Deposits) × (Unrealized Mark-to-Market Bond Losses / Common Equity Tier 1)
Cole Barrett's Reality Check
The Unvarnished Bottom Line"In the digital age, a bank run doesn't involve people lining up around the block; it happens on an iPhone in forty-five minutes. If a bank has a high concentration of uninsured tech deposits and billions in paper losses on underwater bonds, a single viral post can trigger billions in withdrawals before lunchtime. That's digital bank run contagion, and it spreads fast."
Interactive Simulator: Test the Math
Real-World Example: Scenario Breakdown
Examining the real numbers for: A depositor managing $1,200,000 in uninvested corporate operating cash across a volatile banking cycle
| Execution Metric | Multi-Bank Insured Sweep Structure | Concentrated Single-Bank Depositor |
|---|---|---|
| Fee / Rate | $0 account fees | $0 account fees |
| Spread / Buffer | Used an automated sweep account that distributed the $1.2M balance across 6 partner banks in $240,000 increments | Kept the entire $1,200,000 balance sitting in a single regional bank account; $950,000 sat above the insurance cap |
| Execution / Status | 100% of cash reserves qualified for statutory deposit insurance guarantees | Bank was hit with a rapid digital bank run and placed into emergency regulatory receivership over the weekend |
| Total Cost / Result | Protected from bank run contagion via multi-bank sweep distribution | Operations crippled by single-institution concentration risk |
How Brokers Weaponize This Term
Review your broker's uninvested cash sweep disclosures. If your broker holds uninvested cash at a single affiliated bank entity, move large cash balances above $250,000 into short-duration Treasury bill ETFs (like SGOV or BIL) to eliminate bank credit risk entirely.
Broker Evaluation Matrix
Cole Approves
Fidelity: Provides institutional cash sweep options into government money market funds backed directly by short-term US Treasuries and repo agreements.
Read Audit →Cole Flags / Avoids
Monoline Fintech Apps: Holds customer deposits at single regional partner banks without multi-bank sweep programs, leaving balances exposed to deposit flight shocks.
View Trap Details →Frequently Asked Questions
Why did bank runs get so much faster recently?
Mobile banking apps, digital wire transfers, and social media networks allow depositors to coordinate and move billions of dollars in minutes, compared to the days-long lines of the past.
Are my stock holdings at risk if my broker-bank faces a run?
No. Under SEC Rule 15c3-3 and FCA CASS rules, fully paid shares of stock and ETFs are legally segregated from the broker's balance sheet. The direct run risk is concentrated in uninvested cash.