Submitted by Mark Hanna
Courtesy of MarketMontage. View original post here.
Institutional bank runs are what really set the U.S. crisis of 2008 off to a new level – that is when a lack of trust in the system becomes apparent, and people simply want to see a return of their capital rather than a return on their capital. It never really happened at the retail level domestically – but it is now happening in certain countries in Europe. Early this week it was reported Greek depositors pulled some $900M worth of money out of their banks in a single day.
- Greek depositors withdrew €700 million ($898 million) from the country’s banks on Monday, fueling fears of a bank run amid the growing political disarray. With deposits falling, Greek banks become even more dependent on the European Central Bank to meet their funding needs, exposing the central bank to potentially huge losses if Greece leaves the euro area.
- Monday’s deposit withdrawal far outpaced Greek banks’ steady decline in deposits since the start of the country’s debt crisis in 2009, as depositors withdraw cash and transfer funds overseas. In the past two years, deposit outflows have generally averaged between €2 billion and €3 billion a month, though in January they topped €5 billion.
I also read a story where wealthy Greeks are flocking into the London housing market to buy ‘firm assets’. You can read both as signals some might think they are heading back to drachmas eventually. While Greece is Greece (and the country is apparently paralyzed for another month as we wait for mid June elections), the news out today that we are seeing a bank run in Spain is more troubling due to the size of that economy. Granted this was a bank that was ‘bailed out’ by the Spanish government in the past week, so it *might* be an isolated event, but something to keep an eye on to see if these actions spread to other institutions.
- Customers of troubled Spanish bank Bankia, nationalized last week, have taken out over 1 billion euros ($1.3 billion) from their accounts over the past week, El Mundo newspaper reported on Thursday. The newly appointed chairman, Jose Ignacio Goirigolzarri, informed a board meeting that customers had pulled out funds since the bank was taken over by the government, El Mundo said, citing information from the board meeting it had seen. The government took over Bankia, the country’s fourth largest lender, on May 9 in an attempt to dispel concerns over the bank’s ability to deal with losses related to a 2008 property crash.
If this continues, what’s the end game here? Just as in the U.S. we can expect a massive intervention eventually. Backstops, global central bank strikes, IMF – you know the game by now. Just a manner of the timing of it all.
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