What is a bank run?

The original term is “bank run” which translates as “the bank leak” or “leak in the bank” but in different countries can be translated as “bank run” (Spain), “stampede” (Mexico) and more elegantly “banking panic” or “siege”. The phenomenon was observed already in the nineteenth century when certain customers banks could not collect their savings or interest because at one point that their banks could not pay them because they had no cash. This led to a multitude of customers came to the bank demanding that their savings will be returned.

It meant that the banks or the bank in particular were in a process of “bankruptcy” is the known case of a small U.S. bank, the kind we see in the “Westerns”, which invested most of their capital in gold, since it was the center of trade in the area, that is, money became miners extracted gold. A delay in the payroll that came by stagecoach, he left without cash to the bank, only had gold and clear that when a customer wanted to withdraw part of their savings and could not do it “all hell broke loose,” the rumors cundieron for all transportation and many thought the bank was bankrupt. Of course the timely arrival of the payroll, the cavalry egalitarian movies cowboys and Indians, avoided a “bank run” on a bank fully funded.

In financial theory says that a bank run can be caused by two reasons: first that a rumor or a sudden loss of confidence make customers claim their cash monies abruptly in a very short time and the second in effect the bank for any reason, not just bankruptcy, does not have the cash to meet such commitments. The case to which I referred first corresponds to a rumor or loss of confidence but the cases occurring in the depressions of 1873 (known as the Long Depression lasted until 1896), 1907 and 1929 (called the Great Depression) are examples where lack liquidity was the main cause. In these crises so complex, where multiple factors come together, some banks and financial organizations survive because customers do not lose their confidence in them and many others, that could well have survived did for the opposite reason.

Also the rumor has been widely used tool to get going bankrupt financial institutions during the financial crisis have not been lived yet few have taken advantage of the rumors to move their savings from one entity to another causing a lack of liquidity and with that bank runs and bankruptcies and buy assets cheaply.

These moving capital leveraging favorable or unfavorable circumstances banks are called “vagabond capital” and are causing many banks and even countries entering economic crisis, those who have seen the second part of the movie “Wall Street” where it is the global economic crisis we see an elderly banker (played by an actor Eli Wallach veteranísimo) that repeatedly makes a “chirping” (like a swallow) to indicate to move the money to not lose them.


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