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Thursday, March 28, 2013

The Great European Bank Run that never was?


Journalists were descending on banks across Cyprus this morning to monitor whether Cypriot depositors would rush to withdraw their cash as the country’s banks opened after being closed for 10 days. So far, however, there have been virtually no dramatic scenes of desperate people flocking to ATM machines and banks. There’s a feeling of calm. Those who expected Northern Rock style scenes have been left disappointed. However,  a couple of points:
  • First, there’s no hard data available yet for deposit withdrawals in March, so everything is based on anecdotal evidence. There have been numerous press reports speculating about withdrawals in the run up to the bailout and even while the banks have been closed. Unfortunately, these are unlikely to be confirmed or disproved for at least a month (when data is expected).
  • Remember, there are limits on what people can withdraw and/or transfer electronically. People may not be too bothered about waiting at banks if they are subject to strict limits.
  • Obviously, in this day and age, much banking is done electronically so the number of people at the actual bank branches may not reveal the true level of transactions taking place behind the scenes. This is particularly true for Cyprus given the high level of foreign depositors who would have to bank electronically.

In the meantime the latest data on deposits in Cyprus in February was released this morning. Total deposits fell from €68.4bn to €67.5bn – a 1.3% fall, but not exactly as disastrous as some may have expected.

At the same time, as we predicted, depositors elsewhere in Europe – in particular Spain and Italy – have so far shown zero inclination to see themselves as next in line. There has been, however, a drop in banks shares in the wake of comments by Eurogroup Chief Jeroen Dijsselbloem.

So not the big collapse of everything that some expected, but, the capital controls are likely to play a role in mitigating this. As we have pointed out, the real challenge comes when the Cypriot government looks to remove capital controls and once the data on electronic transactions out of Cyprus becomes clearer.

10 comments:

Anonymous said...

Not entirely sure a few queues at the bank doors this morning will be indicative of the damage to come.

Witness slow motion emptying of bank accounts to the tune of £300 a day over the next few months...

Anonymous said...

Bit of a silly story OE. Depositors can only take a limited amount of cash out each day so how the bank run?!

Of more interest is cash leaving the Spanish, Italian and French banking systems which I know it is.

The EU/EZ clowns have broken finance and some countries like Greece and Cyprus with it.

Shame on them.

Open Europe blog team said...

Thanks for the comments.

Indeed, our point was to highlight that the queues may not be indicative of transactions behind the scenes or in the future. Also that until the controls are removed and data is published it’s not clear what exactly is really happening - hence why all the attention is a bit silly at this point.

As for the other countries, again we have to wait for concrete data to judge; at this point it could still go either way in our view.

Rik said...

@Anonymous2
You missed the clue. Bankruns are difficult to legislate. They can be much more fun if people simply want their money whatever. What I mean is that Cypriots could have made that high gunownership to practical use for instance.
It appears to be not happening, goes relatively smoothly.

@OE
Cyprus will most likley as Anonymous2 indicates develop as a bankwalk to a bankjog or something in between, but for a long distance.
No sense keeping money in a bank that gives heavy limitations and might go bust next week. Companies will not deposit cash. Wages paid by check and employees taking that out at 300 a day.

It won't happen somewhere else. Not as a real bankrun at least. What was happening was clearly to be seen 2 weeks ago already, clear 1 1/2 weeks ago with the first agreement and certainly with Dijsselbloom's interview not to be missed in the media anywhere.
No real reports of anything while people had the opportunity to move the money every day of the week.

Looks like the clever bigger money takes its time (is not pushing things) but will do it (hard to see otherwise). Reverse the Draghi Put trend on Target2.
But the Southern population as a whole simply doesnot move. And that part most likley would have moved already if they wanted.
So simply donot see a serious bankrun happening anywhere in the South.

Also doesnot look that the so called damagelimitation after Dijsselbloom hasnot convinced anybody. So a substantial part should have been priced in now. Which is a positive imho the big shocks are the main danger.

These kind of signals are unavoidable imho however should be timed and limited. You cannot repeat this every week. Next time better in all 3 Latino-PIIGS at the same time, probably as a levy/tax. Combined with bondholders. Not much foreign dough so alevy gives not much practical problems.

Anyway some risk has to be taken it simply takes too long and the mess looks rather to get bigger iso smaller.

Anyway2 it might be a good incentive when in slowmotion accountholders force countries to clean up things and remove a few garbagebelt banks from the system. The mess is too big anyway to let time do its work, takes too long. And without pressure nothing happens Italy and Spain show every day.

Anonymous said...

Maybe they have no money left to withdraw.

RG said...

Socialism means what is yours is NOT yours.

Anonymous said...

People either present at banks to get their money in cash, or they move their money electronically or by cheque from Bad Bank to Good Bank.

In the case of Cyprus which is the Good Bank?

In terms of moving money electronically or by cheque, where to?

Since we are all international terrorists or money laundering drug lords until proven otherwise, opening a new bank account is hard enough in ones own Country, neigh impossible in another.

Capital controls have been in place for some time, just by another name and for an alleged different purpose, but in fact they are there to control movement of money.

So in contemplating run on banks in the EU, here are a few things to consider: the problem is both the banks and the currency. Taking money out of the banks and hoarding cash does not solve the dodgy currency problem. Since opening a bank account in another Country either in or out of the euro zone or outside ones own Country - USA, Switzerland, UK for example - is very, very, very difficult, moving money to a new 'safer' bank or currency in another jurisdiction is not a practical option for most.

In other words, the Citizens of Europe have been nicely stitched up as with so much of what it means to be in the EU. But they have only themselves to blame for allowing it.

Ian Campbell said...

The Stock market went up in the rest of the week that Lehman's went down.

Cyprus is a structural blow at the foundations of the banking system. It will cause those weaknesses to be blown open bit by bigger bit as each phase of the crisis unfolds. Draghi's do "anything required" will not patch it.

christina speight said...

This article is - as it indicates - premature.

There are established figures of deposits lifting sharply in Malta and Latvia. Most Eurozone banks - and even ours - will keep it under wraps for as long as possible.

Ralph Musgrave said...

Cyprus would have been a storm in a tea cup under full reserve banking.

Under full reserve, depositors are made to choose between, first having their money lodged in a genuinely 100% safe manner: e.g. having the money lodged at the central bank where it cannot possibly be lost, but the money earns little or no interest. Second, depositors can choose to let their bank lend on or invest their money. But in that case depositors foot the bill if it all goes wrong (i.e. they can be bailed in). At least that sort of “two account” system operates under full reserve as advocated by Laurence Kotlikoff and secondly by this lot:

http://www.positivemoney.org.uk/wp-content/uploads/2010/11/NEF-Southampton-Positive-Money-ICB-Submission.pdf

In that scenario, Cyprus depositors who had chosen 100% safety would have lost nothing. While those who had chosen to let their money be put at risk would have taken a hair cut. But the latter would have been nothing more than they signed up for when first lodging their money.
Problem solved.