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Why Banks & Governments Hate Cash: Bank Runs
Why Banks & Governments Hate Cash: Bank Runs
The photos from Greece showing long lines at ATMs are astonishing. Even after the deposit outflows from Greek banks over the past weeks, there are still large numbers of people who are trying to get their money out of the banking system. With the banks closed, ATMs are the only way for people to get any cash. Let’s not beat around the bush in describing what is happening: this is a bank run. Even though Greece has a deposit insurance scheme that covers up to €100,000 in savings accounts, trust in the banking sector is declining and people are trying to get their money out. Cash is the ultimate means by which consumers can restrain the behavior of governments and banks, which is why governments and banks are doing everything they can to do away with cash.
The problem with the banking system is that banks today operate as fractional reserve banks. Money deposited into savings accounts is loaned out up to the bank’s reserve requirement. If the reserve requirement is 10%, then 90% of the money in savings accounts is loaned out. If the reserve requirement is 3%, then 97% of the money in savings accounts is loaned out. The problem comes about in that the bank simultaneously gives the full use of that money to borrowers, often lending at long terms up to 30 years in the case of mortgages, while still telling depositors that they can withdraw their money at any time. So what happens when depositors want to withdraw more money than the bank has on reserve? The bank tries to refuse to honor withdrawal requests. Then the public loses confidence in the bank, depositors line up to demand their money, and you have a scene out of “It’s a Wonderful Life.”
…click on the above link to read the rest of the article…
Greece Rejects “Totally Unaccepetable” IMF Counterproposal Demanding Pension Cuts, VAT Hike
Greece Rejects “Totally Unaccepetable” IMF Counterproposal Demanding Pension Cuts, VAT Hike
As reported earlier and as tipped here on Monday, markets will have to call off the party for now because the focus of the Greek debt deal negotiations has now shifted back to Brussels after all eyes had turned briefly to Athens on Tuesday following reports which indicated a deal in principle had been struck. Here’s what we said less than 24 hours ago:
The IMF demands no tax hikes and pension cuts. Instead it will get almost exclusively tax hikes, amounting to 92% of the proposed measures, and just a few cuts, few of which actually impact Greek pensions. In short: the proposal is not only unsustainable, it is also unenforceable, something which the Germans – already facing a third Greek bailout – will be quick to point out.Which is why tomorrow, after Tsipras is finished with the meeting with the Troika, he will have a new homework assignment: revise the “final final” proposal and come up with much less in tax hikes, much more in spending cuts: something which the already furious hard-line elements within Syriza will have a field day with.
And that is precisely what happened. As WSJ reports, creditors have decided to stick to their “red lines” after all:
Significant divisions remain between Greece and its international creditors over measures Athens must implement before receiving desperately needed bailout aid, according to a document seen by The Wall Street Journal on Wednesday ahead of a crucial meeting of eurozone finance ministers.Key points of disagreement are corporate taxation, the overhaul of Greece’s pension system and value-added taxes, according to the document. For instance, Greece had planned to increase corporate taxes to 29%, but in the document creditors limited increase to 28%. That may cause new budget shortfalls that need to be plugged with other measures.
…click on the above link to read the rest of the article…
“The Collateral Has Run Out” – JPM Warns ECB Will Use Greek “Nuclear Option” If No Monday Deal
“The Collateral Has Run Out” – JPM Warns ECB Will Use Greek “Nuclear Option” If No Monday Deal
(via Corriere)
Although estimates vary, Kathimerini, citing Greek banking officials, puts Friday’s deposit outflow at €1.7 billion. If true, that would mark a serious step up from the estimated €1.2 billion that left the banking system on Thursday and serves to underscore just how critical the ECB’s emergency decision to lift the ELA cap by €1.8 billion truly was. “Banks expressed relief following Frankfurt’s reaction, acknowledging that Friday could have ended very differently without a new cash injection,” the Greek daily said, adding that the ECB’s expectation of “a positive outcome in Monday’s meeting”, suggests ELA could be frozen if the stalemate remains after leaders convene the ad hoc summit. Bloomberg has more on the summit:
Dorothea Lambros stood outside an HSBC branch in central Athens on Friday afternoon, an envelope stuffed with cash in one hand and a 38,000 euro ($43,000) cashier’s check in the other.
She was a few minutes too late to make her deposit at the London-based bank. She was too scared to take her life-savings back to her Greek bank. She worried it wouldn’t survive the weekend.
“I don’t know what happens on Monday,” said Lambros, a 58-year-old government employee.
Nobody does. Every shifting deadline, every last-gasp effort has built up to this: a nation that went to sleep on Friday not knowing what Monday will bring. A deal, or more brinkmanship. Shuttered banks and empty cash machines, or a few more days of euros in their pockets and drachmas in their past – – and maybe their future.
For Greeks, the fear is that Monday will be deja vu, a return to a past not that distant. Before the euro replaced the drachma in 2002, the Greeks were already a European bête noire, their currency mostly trapped inside their nation, where cash was king and checks a novelty.
…click on the above link to read the rest of the article…
“Bank Holiday” Preparations Begin In Greece, Lines Form At Athens ATMs
“Bank Holiday” Preparations Begin In Greece, Lines Form At Athens ATMs
The writing has been on the wall for quite sometime.
Deposit flight from Greece’s ailing banking sector has been running north of €500 million per day this week as the threat of capital controls casts a pall over the Greek government’s efforts to reassure the public and head off a terminal bank run.
Sparking a panic has been the most powerful tool at the troika’s disposal to bring PM Alexis Tsipras to the negotiating table and force Syriza to either concede to pension cuts and a VAT hike or risk social and political upheaval in the face of dark ATMs and public protests – we said this first in February and finally even the Greek government realized just what game Europe is playing.
Until now, Greeks had taken the barrage of headlines in stride with a stoic fortitude that would impress Marcus Aurelius but now, it appears as though the ‘institutions’ might have finally broken their spirits.
Earlier today, the ECB agreed to lift the ELA cap by just €1.8 billion, far less than Greek banking officials had requested and probably just barely enough to cover Friday’s withdrawals. And so, as Europe’s “Lehman Weekend” may finally be kicking off, the ATM lines are officially forming as Greeks prepare to be ‘Cyprus’d’ and as the country stares into “template” oblivion.
…click on the above link to read the rest of the article…
“Calm Reigns” Everywhere As Greece Inches Closer To Default, China Crashes
“Calm Reigns” Everywhere As Greece Inches Closer To Default, China Crashes
In what is perhaps the most glaring instance of central bank intervention yet,Reuters today captured the market mood as follows: “Calm ruled Europe’s stock and currency markets on Friday as Greece inched closer to a default later this month….the euro was down just 0.3 percent against the dollar and major European stock markets gained in early trade.” Why is Europe (and by extension US futures) so desperate to show green today even with a Greek default imminent? The same reason we explained back in January when we said the ECB and the Fed would do everything in their power to eliminate all Greek “negotiating” leverage which from day one was the attempt to create market contagion from Grexit. Unfortunately for Greece, the ECB’s QE intervened and blew a hole right through its plans, and now, it finds that not only do markets not care about the Greek contagion about which even Janet Yellen warned, but in the US hit all time highs!
The inverse, however, is certainly not true as ECB “sources” leak each and every day just how bad the Greek bank run is, and promptly put this information into the public domain in hopes of accelerating the already terminal bank run which unless halted will lead to capital controls and ultimately the fall of the Tsipras regime: precisely what the Troika has been after all along, as we also explained all the wayback in February. Sure enough, just a few hours ago Reuters “sources” reportedthat after €2 billion exited the Greek financial system in the first three days of the week, on Thursday the outflow hit what may have been a record €1 billion in one day.
…click on the above link to read the rest of the article…
LEAKED (Denied then Confirmed): ECB Not Sure If Greek Banks Can Open Monday
LEAKED (Denied then Confirmed): ECB Not Sure If Greek Banks Can Open Monday
There seems to be a growing willingness in the Eurozone to get this over with, to let Greece default and go from there – with all the options that this might entail. But even if a last-minute bailout agreement materializes, one thing stands out in this sea of chaotic uncertainty: Greek banks are toast.
The top four – National Bank of Greece, Piraeus Bank, Alpha Bank, and Eurobank Ergasias – account for 91% of Greek banking assets. They’ve already been bailed out twice. Their shares are penny stocks. They have two toxic problems: liquidity and solvency. Either one can topple them.
Liquidity is a problem because the Greeks have zero trust in their banks and have been yanking their euros out with increasing desperation. They won’t ever forget what happened to depositors in Cyprus. Deposits have plunged about 20% since November, to €130 billion. According to Reuters, “banking sources” said that just during the first three days of this week, Greeks have pulled €2 billion from their accounts – about €667 million a day, compared to prior weeks when they’d withdrawn €200 to €300 million a day.
Meanwhile, funding from central banks has jumped to over €120 billion: €40 billion from the ECB directly; and €83 billion via the Emergency Liquidity Assistance (ELA) through the Bank of Greece. Thus, deposits and central-bank funding are rapidly approaching a dreadful level: parity.
“There’s a real possibility they’ll fold, not just Greece but the banks themselves,” Fitch Managing Director James Longsdon told CNBC.
And ELA, the lifeblood of Greek banks, is conditioned on two things: available collateral and solvency.
…click on the above link to read the rest of the article…
Inciting Bank Runs as a Negotiating Tactic
Inciting Bank Runs as a Negotiating Tactic
The troika of Greek creditors has gone into full-frontal morals-be-damned attack mode, handpicking arms from a weapons arsenal we haven’t seen used before, and that we never should have seen in an environment that insists – and prides – on presenting itself as a union, both in name and in spirit. Now that they are being used, there no longer is such a union other than in name, in empty words.
This has turned into the kind of economic warfare one would expect to see between sworn and lethal enemies, that the US would gladly use against Russia for instance, but not between partners in a union founded on principles based entirely and exclusively on being mutually beneficial to everyone involved.
Those principles, and everything that has been based on them, the common currency, the surrender of ever more sovereignty on the part of the nations involved, the relinquishing of national powers to the various supra-national bodies in Brussels, has for everyone involved been based on trust. Nobody would ever have signed up to any of it without that trust. But just look where we are now.
When spokespeople at the troika side of the table stated on Thursday that they don’t know if Greek banks will be open on Monday, they crossed a line that should never even have been contemplated. This is so far beyond the pale, it should by all accounts, if everyone involved manages to keep a somewhat clear head, blow up the union once and for all. If a party to a negotiation that can’t get its way stoops to these kinds of tactics, there is very little room left for talk.
…click on the above link to read the rest of the article…
Macedonia Central Bank Blocks Greek Bank Withdrawals “In Case Of Grexit”
Macedonia Central Bank Blocks Greek Bank Withdrawals “In Case Of Grexit”
The bank runs (and capital controls) begin. Macedonia Central Bank Governor Bogov states:
- *GREEK BANKS IN MACEDONIA CAN’T WITHDRAW CASH: BOGOV
- *MACEDONIAN BANKS PROTECTED IN CASE OF GREXIT: BOGOV
How long before the rest of Europe follows suit and a bank holiday is declared Monday to “Cyprus” depositors?
He further added:
- *MACEDONIAN CENTRAL BANK SEES MAJOR RISKS FROM POLITICAL CRISIS
Just to be clear, this withdrawal halt is protection against a worst case scenario… BUT, by imposing capital controls you are ASSURING a worst case scenario occurs!!
Greek Banks On Verge Of Total Collapse: Bank Run Surges “Massively” As Depositors Yank €700 Million Today Alone
Greek Banks On Verge Of Total Collapse: Bank Run Surges “Massively” As Depositors Yank €700 Million Today Alone
While the Greek government believes it may have won the battle, if not the war with Europe, the reality is that every additional day in which Athens does not have a funding backstop, be it the ECB (or the BRIC bank), is a day which brings the local banking system to total collapse.
As a reminder, Greek banks already depends on the ECB for some €80.7 billion in Emergency Liquidity Assistance which was about 60% of total deposits in the Greek financial system as of April 30. In other words, they are woefully insolvent and only the day to day generosity of the ECB prevents a roughly 40% forced “bail in” deposit haircut a la Cyprus.
The problem is that a Greek deposit number as of a month and a half ago is hopefully inaccurate. It is also the biggest problem for Greece, which has been desperate to prevent an all out panic among those who still have money in the banking system.
Things got dangerously close to the edge last Friday (as noted before) when things for Greece suddenly looked very bleak ahead of this week’s IMF payment and politicians were forced to turn on the Hope Theory to the max, promising a deal with Europe had never been closer.
It wasn’t, and instead Greece admitted its sovereign coffers are totally empty this week when it “bundled” its modest €345 million payment to the IMF along with others, for a lump €1.5 billion payment, which may well never happen.
And the bigger problem for Greece is that after testing yesterday the faith and resolve of its depositors (not to mention the Troika, aka the Creditors) and found lacking, said depositors no longer believe in the full faith (ignore credit) of the Greek banking system.It may have been the Greek government’s final test.
…click on the above link to read the rest of the article…
EU and Greece Running Out of Time – As Bank Runs Intensify, Bail-Ins Likely
EU and Greece Running Out of Time – As Bank Runs Intensify, Bail-Ins Likely
– EU and Greece running out of time as talks end “in disarray” – again
– Greece warns Merkel of ‘impossible’ debt
– Concerns Greece out of money by end of April
– Friday’s “agreement” in Brussels falls apart hours later as protagonists fail to agree on specifics
– Greece now insolvent – will run out of liquidity by end of April
– Greek banks on verge of collapse as runs continue – €1.5 billion emptied out of banks last week alone
– ‘Grexit’ could propel gold to over $2,000/oz
– Cyprus style bail-ins look increasingly possible
Greece’s place in the Eurozone is as precarious as ever as talks between Prime Minister Tsipras and European leaders in Brussels broke down – hours after reaching general agreement – and Greece warned Germany that it will be “impossible” for Greece to service debt payments due in the coming weeks if the EU fails to provide short-term financial assistance.
Greece – faced with illiquidity, insolvency and a potential banking collapse – is running out of time and appears to be on the back foot as its international creditors refuse to countenance any debt restructuring, rescheduling or forgiveness.
The warning from Greece came in a letter from Tsipras to Angele Merkel provided to the Financial Times. It comes as concerns mount that Athens will struggle to make pension and wage payments by as early as next week, the end of March, and could run out of cash completely before the end of April.
The letter, dated March 15, came just before Ms Merkel agreed to meet Mr Tsipras on the sidelines of an EU summit last Thursday and invited him for a one-on-one session in Berlin, scheduled for Monday evening.
…click on the above link to read the rest of the article…
Russell Napier: “The Most Dangerous Thing In Finance Is The Thing That Never Ever Moves – Until It Moves”
Russell Napier: “The Most Dangerous Thing In Finance Is The Thing That Never Ever Moves – Until It Moves”
The PBOC – How to fail in business without really flying
“Terrain seems a bit unstable…and there seems to be no sign of intelegent life anywhere”
– Buzz Lightyear (Toy Story)
“That wasn’t flying…that was falling with style”
– Woody (Toy Story)
Another day, another central bank failure. In a world of currencies backed only by confidence, every failure is masqueraded as success. Like the ballet dancer who transforms the stumble into a pirouette, central bankers, knocked to the ground by market forces, smile and pretend that this was all part of the routine. Financial market participants, having bet everything on the promised omnipotence of central bankers, do indeed seem happy to see genius in every stumble. However a fall is a fall regardless of the style of the descent. So when will investors see that the earth is rapidly approaching and that style is just style?
The key for investors today is to see behind the masquerade and the mask, the façade of those putting up a front behind a public face, and be able to tell the difference between the soaring flight of reflation and the perilous fall of deflation. The more attitude you hear from policy makers, the more you can be sure it’s style compensating for the lack of real substance and that this is falling and not flying. And as the attitude becomes more high-handed, the lower the altitude gets. The attitude quotient is rising rapidly.
Two weeks ago we noted the ‘flying’ undertaken by the Swiss National Bank as the market forced them to abandon their exchange-rate target. Deposit rates in Swiss Banks are now at such a low level that investors are better off converting deposits into bank notes and placing them under the bed. The Danish Central Bank has also instituted negative interest rates with the consequence that deposits in Denmark might also fly into paper. As the central bank managed to create over DKK106bn (US$16.3bn) in bank reserves, trying to stop a revaluation of their exchange rate last month, there will be no shortage of banknotes to go round should a ‘bank run’ from deposits to banknotes begin.
…click on the above link to read the rest of the article…
Belarus In Full-Blown Hyperinflation Panic: Blocks News, Online Stores; Bans All FX Trading For 2 Years | Zero Hedge
“We have to do something with these Belarussian rubles,” exclaims one Belarussian as she shops to turn worthless rubles (BYR) into physical assets. As AFP reports, The Belarussian currency was dragged down by the slide of the Russian ruble last week, leading authorities to impose draconian measures, forbid price increases even for imported goods, and warn people against panic. Now, however, in an effort to stem the flood of hyperinflating domestic prices, authorities have blocked online stores and news websites to stop the run on banks and shops as people scramble to secure their savings. One of the blocked news websites noted, it “looks like the authorities want to turn light panic over the fall of the Belarussian ruble into a real one,” calling the blockages “December insanity.” And indeed they have stepped up the insanity:
- BELARUS HALTS OTC TRANSACTIONS IN FX UNTIL 2017: INTERFAX
