A Republican senator says that advancements in technology is exposing the fragility of the US banking system.
In a new CNBC interview, Louisiana Senator John Kennedy says banks today are no different than the scheme ran by Italian con artist Charles Ponzi over 100 years ago.
According to Kennedy, banks can only survive on the basis of trust, but not 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 everybody trusts each other.
You get on that iPhone and start sending text messages and you have the herd panic and stampede, anybody can go broke. It’s breathtaking.”
Kennedy’s comments come as several regional banks witnessed their share prices fall off a cliff last week.
PacWest Bancorp, which provides business banking and treasury management to small and midsized businesses, saw its share price collapse 44% in the past week.
Western Alliance Bancorporation (WAL), an Arizona-based regional bank also dipped big, shedding nearly 27% off its share price over the same timeframe. Metropolitan Bank Holding Corp (MCB) is also down nearly 30% on the week, despite beating earning expectations just weeks ago.
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