As rumors of
imminent collapse began to build due to the banks reported
liquidity problems in Estonia and Sweden, Latvians panicked and
headed for their cash. This was the scene outside of numerous ATMs
in Latvias capital city, Riga:
There are various
reasons for why a bank run may occur in the U.S., but the overwhelming
driving mechanism will be panic. Once the public realizes that a
particular insititution cant make good on its debt or the
countrys currency goes into a death spiral, depositors will
be out in droves. ATMs will be limited on cash and generally allow
withdrawals of about $300 per day. Likewise, banks will simply not
have enough money to pay out the entire account balance of every
depositor, so they will more than likely implement withdrawal restrictions
similar to what you might get from an ATM.
At that point,
the future of your finances will fall into the hands of the federal
government by way of the FDIC, which itself is wholly under-capitalized
and unable to effectively cover the deposits of a single major U.S.
bank, let alone the entire banking system.
In Latvia the
situation looks as if it is somewhat controlled (or not everyone
has yet realized what is happening), but as we pointed out last
week when it was reported that
Greeks were quietly withdrawing their money from their banks,
if you are late in learning of an imminent collapse or dont
make the decision in time, you may very well joins thousands of
other panic stricken account-holders in the parking lot of a bank
that has no more money left to issue.
be very little, if any, warning before such an event occurs. Thats
why they call it a bank run. One morning depositors wake up and
learn that their life savings are about to be disappeared. The inevitable
emotional effect when faced with such losses is stress, anxiety,
panic and fear. This is what it looked like at Northern Rock bank
in the UK after the bank was declared insolvent in 2006:
Not to worry
though, because this cant happen in the United States. Weve
got a modern day centrally managed economy, secretive monetary policy,
banks that will do whatever it takes to hide losses, and financial
regulatory agencies that are happy to look the other way if theres
any sign of trouble.