Skip to content

Silent Run on the Banks

Retiring money from your bank account was a cumbersome process in the great depression crisis in 1929-1933. You had to find out the deposit papers, line in an incredibly long queue, which could have lasted days. Plus that often the money ceased to be available right in front of you.
Nowadays things are much simpler. Investors can withdraw money from their accounts at a click of a mouse. And with the rise of the internet, they can do so in seconds, therefore a bank can bleed billions USD per hour via the internet. And all they do is to move their amounts exceeding the insured deposit limits to another bank! And all these mass withdrawals take place invisible, at incredible speeds.
The Dutch Fortis bank said it had lost about 3 percent of its deposits since the beginning of this year, both from consumer and business clients, or about 5 billion euros ($7 billion).
Britain’s Northern Rock, which last September suffered the first run on the deposits of a major British bank for more than 140 years, saw customers line up over three days at branches when confidence disappeared, in scenes that one politician said made Britain looked like “a banana republic.
But branch withdrawals slowed after the government guaranteed savings. The major damage was done by withdrawals by internet, postal and telephone customers. Almost 14 billion pounds ($25 billion) of savings were withdrawn from Northern Rock from the start of the panic until the end of 2007. This was more than half of its retail deposits. Only one third of the deposits were liquidated at the branches!
As one customer said, you do not panic initially but the news (and the investing blogs such as our a feeling of wrong is building up until the security or trust disappears and you have to do something. In this case, you move your money out at soonest, no matter what the costs can be.
This was one of the major concerns for the European governments who try to protect their banking systems from the incoming crisis.

Leave a Reply

Your email address will not be published. Required fields are marked *