A history of the next 10 years in banking

Back to the future.
Back to the future.
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Through an unlikely series of cosmic events, Quartz has obtained a Future of Finance Friday dispatch from the, well, future: The story was written by a bot named Garth and datelined New York, Sept. 15, 2028:

Remember Lehman Brothers? Almost exactly 20 years after the storied investment bank collapsed, nearly dragging down the global financial system with it, Wall Street executives are calling the latest panic another “Lehman moment”: the coordinated cyber attack on three of the biggest US banks.

What amounts to a bank run is in progress as frightened consumers drain the accounts they’re still able to access. Banks’ borrowing costs have jumped amid fears of insolvency, exceeding records set in late 2008. Trust between the world’s financial institutions has evaporated, a replay of the system-wide seizure that threatened to crush the global economy two decades ago.

For now, there are more questions than answers, which is further fueling the hysteria. The White House says it doesn’t know the origin of the attack, whether it was a nation-state or a sophisticated criminal gang. However it appears to have been long in the planning, officials say. The criminal transfers were disguised to look like normal transactions, evading the banks’ automated detection systems.

Like most crises, the origins are obvious in retrospect. Corporate bigwigs in Davos were grumbling about cyber risks a decade ago. Looking back in history, a report from Shape Security in 2018 found that fraudulent login attempts had long flooded consumer banks, as cyber criminals tried out stolen credentials and honed their tactics.

Bank systems have in many ways become more hardened since then—or at least they seemed to be. Ransomware attacks, the scourge of the 2010s, became just about obsolete. However, consumer logins and transaction mechanisms remain a weakness. Banks want their customers to be able to access their accounts as easily as possible, which has created lasting security vulnerabilities.

For now, consumers are furiously trying to pull their money even from US banks that weren’t attacked, according to senior government officials who declined to be identified. Ten years ago, bank customers could have gone to branches to withdraw their savings in cash, but both physical locations and banknotes are rare these days. Bank sites and apps are crashing under the load of customers trying to access their accounts. Foreign institutions have barred American deposits and transfers out of fear of getting tangled up in, or contributing to, the unfolding crisis.

The Federal Reserve is trying to quell the growing panic by promising to make depositors whole, essentially backstopping the accounts that were hacked. However, efforts to stop the spread of systemic risk have been hampered by a lack of safeguards, which have been substantially rolled back over the past 10 years.

The belief that automated decisions and artificial intelligence made the financial system more robust—even as the country’s biggest banks got bigger and the industry grew more concentrated—is being severely tested. The US agencies responsible for financial regulation, after years of mergers and budget cuts, appear overwhelmed.

As always, the cryptocurrency crowd says this is their moment. And, indeed, the price of bitcoin, which has been all but outlawed in the US, shot up on clandestine exchanges, to around $6,500 at the time of writing. The demand suggests that many see the digital asset as their only hope for preserving their savings amid the chaos. Given the cryptocurrency’s history of devastating boom-and-bust cycles, that is saying something.


The future of finance on Quartz

  • On the 10th anniversary of Lehman’s collapse, a stunning trader default in Norway is rattling nerves. The derivatives-trading default shines a light on clearing houses that are unquestionably too big to fail.
  • Crypto traders in India are anxiously awaiting a court battle for the future of the country’s digital asset sector. The case has been postponed several times, and investors are wary that they may not like the result when it comes.
  • Bank jobs in Europe are dwindling. As branches close and more finance takes place online, bank employment in the EU has fallen to the lowest level in more than 20 years.
  • Adyen is now worth more than Deutsche Bank. The Dutch fintech’s stock has soared since its public debut less than three months ago.
  • Here are 10 risks that could spark the next financial crisis.

The future of finance elsewhere

  • Blockchain could boost trade finance by $1 trillion. The hype surrounding distributed ledger technology has cooled, but the World Economic Forum still thinks it has potential.
  • IEX landed its first listing. Interactive Brokers switched its stock (paywall) from Nasdaq to IEX, the exchange made famous by Michael Lewis’s book Flash Boys.
  • Despite the bear market for crypto, Morgan Stanley (paywall) plans to offer bitcoin swaps to clients. Citigroup is also considering a new crypto product. Oh, and crypto exchange Gemini has launched a virtual coin linked to the dollar. Who needs a bitcoin ETF?
  • So far, there are no takers for the US’s new fintech charter (paywall), which faces legal uncertainties because of a court challenge.

Previously, in Future of Finance Friday

Sept. 7: Europe’s fintech firms are on pace to set an IPO record this year

Aug. 31: Warren Buffett’s protégé is backing a local rival to Google and Facebook in India’s payments battle

Aug. 24: Financial firms are increasingly giving away their services for free