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The Bank Run

FREEDO
Posts: 21,057
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12/6/2010 10:42:35 PM
Posted: 5 years ago
A bank run (also known as a run on the bank) occurs when a large number of bank customers withdraw their deposits because they believe the bank is, or might become, insolvent. As a bank run progresses, it generates its own momentum, in a kind of self-fulfilling prophecy (or positive feedback): as more people withdraw their deposits, the likelihood of default increases, and this encourages further withdrawals. This can destabilize the bank to the point where it faces bankruptcy.

http://en.wikipedia.org...
GRAND POOBAH OF DDO

fnord
innomen
Posts: 10,052
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12/7/2010 12:51:52 AM
Posted: 5 years ago
Since the average person has so little in their savings, and is more debt burdened, i really don't see it as being a problem as it may have been 50 years ago.
djsherin
Posts: 343
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12/7/2010 10:22:51 AM
Posted: 5 years ago
At 12/6/2010 10:29:31 PM, FREEDO wrote:
I'm surprised this hasn't already been brought up.

http://www.economicvoice.com...

What will this mean? Will it destroy the global economy?

In the US, the banks are sitting on enough excess reserves that they're essentially operating with 100% reserves (the last time I checked anyway... it may have changed). That basically means they could handle all their depositors' claims and not fail. If people are pulling their money out because they're scared of failure and they see that the banks don't fail, I doubt most people won't put their money right back in.

Even if there weren't 100% reserves and there was a massive bank run, I'm sure the Fed would just print the money. This act per se wouldn't be inflationary. The money has already been created through the fractional reserve process as demand deposits. So the Fed printing a bunch of money would increase the cash portion of the money supply, but when people withdrew that cash from their banks, their demand deposits would fall by the exact amount that cash in circulation increases leading to no net increase in the money supply.

Of course that would be bad later when people redeposited that money and then the banks pyramided on top of it.
OrionsGambit
Posts: 258
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12/7/2010 10:27:45 AM
Posted: 5 years ago
At 12/7/2010 10:22:51 AM, djsherin wrote:
At 12/6/2010 10:29:31 PM, FREEDO wrote:
I'm surprised this hasn't already been brought up.

http://www.economicvoice.com...

What will this mean? Will it destroy the global economy?

In the US, the banks are sitting on enough excess reserves that they're essentially operating with 100% reserves (the last time I checked anyway... it may have changed). That basically means they could handle all their depositors' claims and not fail. If people are pulling their money out because they're scared of failure and they see that the banks don't fail, I doubt most people won't put their money right back in.

Even if there weren't 100% reserves and there was a massive bank run, I'm sure the Fed would just print the money. This act per se wouldn't be inflationary. The money has already been created through the fractional reserve process as demand deposits. So the Fed printing a bunch of money would increase the cash portion of the money supply, but when people withdrew that cash from their banks, their demand deposits would fall by the exact amount that cash in circulation increases leading to no net increase in the money supply.

Of course that would be bad later when people redeposited that money and then the banks pyramided on top of it.

Treasury prints the cash not the Fed.

*Edit* Never mind I was thinking of bonds.
Noblesse Oblige