Could Meta's Muse spark a bank run?

The note was brief, but the implications are big: The chief economist of private-equity giant Apollo Global Management thinks agentic AI could spark a bank run.

The suggestion comes from Apollo's prolific commentator Torsten Slok, who said that Muse and similar agentic AI assistants could soon sweep household cash automatically into accounts paying 3.3% to 5.0%, instead of the 0.1% national average on checking accounts.

"If every household used AI agents to optimize the return on their cash balances, banks could lose a large share of the cheap deposits they rely on to make loans, which would be a problem for the entire financial system," Slok said.

And that was the extent of his analysis. It's a pretty explosive charge, so here is more of the data.

According to the Federal Deposit Insurance Corp., the average bank has a net interest margin of 3.32%. So it's true that there's not much room to spare.

Transaction accounts - these are the sorts of checking accounts Slok is talking about - come to $8.3 trillion of the roughly $26 trillion in bank liabilities and capital. They pay a paltry 1%. And accounts that bear no interest whatsoever account for roughly 20% of a bank's deposit base. On CDs, banks pay a more competitive 3.6%.

Using very rough math, increasing interest on $10 trillion of deposits would cost between $200 billion and $300 billion. U.S. banks collectively earned $296 billion last year. In other words, if banks did nothing, their profits would be all gone.

But they wouldn't. Banks would increase loan rates, they'd cut back on riskier lending, and they'd merge to save costs.

Banks recently underwent just the kind of expense shock Slok described, after the COVID-19 pandemic, when interest rates suddenly climbed after a decade near zero. There were a few casualties, like Silicon Valley Bank, but banks mostly absorbed the shock and realigned their businesses.

A less benign shock came in the 1980s with the savings-and-loan crisis.

Also left unsaid is how quickly agentic AI adoption would spread. Meta's (META) Muse has grown in popularity since its launch this month. Another agent, called Instinct, has gained traction.

The State Street Financial Select Sector SPDR ETF XLF has declined in value since the introduction of Muse, but that also coincides with rising long-term bond yields.

-Steve Goldstein