And that is the crux of the issue. Modern banking has tons of fees and burdensome regulations, but it also has entrenched layers of protection that makes sure both the bank and the customer are not 100% nuked when there is a problem.
Bank runs like from the movie "Its a wonderful life" - they don't happen anymore. Currencies devaluating like an exploding balloon - not since the civil war. Sure, it costs you more, but it saves you more.
Lotta benefits to crypto, but lots of hurdles need to be overcome (power and security for a start).
> Bank runs like from the movie "Its a wonderful life" - they don't happen anymore.
Another example of a bank run is the bank run of Northern Rock on the 14th September
2007. This was the biggest banking problem in the United Kingdom since the banking crisis in
the seventies, this was also the first bank run in the United Kingdom in 150 years. Eventually,
this resulted in the nationalization of Northern Rock. It is interesting to analyze this bank run
because it is one of the most recent bank runs in Western Europe. Furthermore, the bank
run from Northern Rock is a special case because it was a ‘reversed bank run’. Normally
during a bank run, a lot of depositors first withdraw their money, due to lack of confidence
for example, and then the bank will as a result of the huge withdraws get into a liquidity
crisis. However, in the case of Northern Rock, the bank first got into a liquidity crisis and as a
result of that, depositors withdrew their money from the bank.
It certainly looks like a bank run - the scenes in London today fulfilled the dictionary definition.
And heading north to Nottingham, and Middlesbrough, the same extraordinary scenes. savers forming long queues to drain their life savings from Northern Rock.
Banking -- an industry built on credibility, confidence and trust. But the Rock looks wrecked even in its home town of Newcastle.
Deposit guarantees should prevent this. But even after an extraordinary unlimited lending facility granted by the Bank of England and agreed by the Chancellor, customers preferred the sight of real cash.
In that case, the nationalisation in that context is to apply brakes - sure those brakes are broken already and so wouldn't prevent a collapse - but its intention is to allow Bank of England's and UK government's protection schemes to be applied with as minimal loss to the taxpayers' and other banks' customers' money as possible. In this case, it limited the run to only the original bank (unlike 19th and early 20th-century bank runs resulting runs in other unrelated banks). Unfortunately, if your a customer of Northern Rock, it sucks so bad.
It's still not the same as an old school bank run. The UK government guarantees the first £85000* of each depositors money (those with more are well advised to split it across multiple banks)
> Deposit guarantees should prevent this. But even after an extraordinary unlimited lending facility granted by the Bank of England and agreed by the Chancellor, customers preferred the sight of real cash.
In US FDIC, which insures bank accounts upto USD 250K, has basically obfuscated Good Bank vs Bad Bank quality check for the retail customer.
The Fed Reserve and Treasury and FinGov apparatus does some 'stress tests' but mostly a dog and pony show.
Banking in US is mostly element of convenience than quality.
No one ran from Wells Fargo accounts (at least retail users) to say Bank Of America because Wells Fargo is fined for basically fraud.
In short term its a good thing, in long term.. well it is prone to blow up, I hope that is not in my life time.
I know several people who closed their Wells accounts (and moved to other retail banks in the US who are just as shitty) when that whole high-level fraud thing at Wells came out (they were opening checking accounts for people without their knowledge and consent, yeah?).
I dropped WF for a credit union as soon as I became aware of their corruption, deception, and mistreatment of their customers. NCUA provides similar if not identical coverage, and with the CU, the entire institution feels less user-hostile.
If the bank bears the losses, then the burden is indirectly distributed to all its customers/shareholders. If the government bears the losses, then its distributed to the whole economy.
> Bank runs like from the movie "Its a wonderful life" - they don't happen anymore.
In the Western developed countries. There are billions living in countries/systems where currencies are devaluating like hell and where banking regulations is looser than crypto.
> Bank runs like from the movie "Its a wonderful life" - they don't happen anymore.
There was one at the beginning of the coronavirus epidemic in the US. A friend of mine runs a branch of a major bank. Just as lockdown was announced, they were mobbed by people demanding cash. The branch ran out of cash and had to close early. It was a bit of a frightening experience for the bank staff. But not a disaster. The branch ordered more cash delivered from the bank's cash center, added extra guards, reopened the next day with the ATMs fully loaded, paid out cash all day, and were back to normal traffic levels by the end of the day.
Running out of vault cash is not a bank run. Those are two completely different things.
A bank run is something that forces the bank out of business -- it makes the bank insolvent. This happens because the bank can't convert its illiquid assets (e.g. mortgages) to cash in order to meet depositor outflow.
That doesn't happen anymore in part because there are markets for things like mortgages that didn't exist before (making those mortgages liquid) and also in part because banks are on the one hand regulated to control what types of assets they are allowed to hold but at the same time they are given access to lending facilities in which they can pledge their assets as collateral to get reserves directly from the Federal reserve, which will never run out of reserves, and with those reserves they can purchase cash from the Bureau of Engraving. Then trucks will ship that cash to the branch. Yes, it may take some time, but the bank will always be able to close out deposits after a brief delay.
Obviously banks try to minimize their cash holdings because cash pays no interest. So they have cash management professionals whose job is to predict cash demand (which is predictable) and hold no more cash than is necessary to meet that demand, parking the rest of their working capital into short term interest bearing liabilities like commercial paper or bills. Today, even reserves pay interest. So everything is better than cash. That necessarily means unexpected events will lead to a situation in which the cash management team underestimates a cash need and so they have to sell some assets (or borrow reserves), pick up the phone and order a truck. That happens quickly but not instantly. When that happens, e.g. when the cash management team makes a mistake, it's not considered a bank run, even if it means that a branch has to close until the armored trucks arrive. It's no different than Safeway running out of apples -- actually there can be prolonged apple shortages at safeway, but there can be no prolonged cash shortages at a bank, since the bureau of engraving can print cash with much lower latency than farmers can grow more apples.
What should let them know their money has not dissapeared is that they can continue making purchases with their debit card or even go to the ATM of another bank to withdraw money.
The world is very different today and cash is not so important anymore.
Bank runs like from the movie "Its a wonderful life" - they don't happen anymore. Currencies devaluating like an exploding balloon - not since the civil war. Sure, it costs you more, but it saves you more.
Lotta benefits to crypto, but lots of hurdles need to be overcome (power and security for a start).