How to stop a bank run

The EU’s proposals:

European Union states are considering measures which would allow them to temporarily stop people withdrawing money from their accounts to prevent bank runs, an EU document reviewed by Reuters revealed.


Wow, even thinking that is going to hold it all up is unbelievable. When they let people withdraw again it’s going to be a rush.


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That would certainly cause most of us to keep the all cash under your mattress and use cash only transactions.



Wow, even thinking that is going to hold it all up is unbelievable. When they let people withdraw again it’s going to be a rush.

Didn’t work that way when FDR closed the banks for a week. Somehow he convinced people to leave their money in, even before there was a FDIC to talk about. I don’t know that I would have fallen for it, but nearly everyone did.

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This was a VERY long time ago, no? Like 90 years…

As an example, it’s pretty much not. Just something that happened in a different time and different system.

In today’s world of instantaneous communication, it seems unlikely that anyone would fall for it. No one trusts a president of either party enough to accept a presidential request.

Every man for himself and the devil take the hindmost.


The fine print on CDs used to say bank could require 30 days notice to redeem your CD. That is one way to slow things down and allow time for the bank to arrange adequate liquidity. Easy loans by govt agencies is easiest.

Demand deposits are another matter. Would you freeze payment of checks or debit accounts? Perhaps parameters can be implemented. Accounts over x value require notice. Or separate types of accounts. Some requiring notice and some less or no notice. With interest rate incentives.

Many possible ways to deal with the issue. But better reserve requirements and backup liquidity systems seem most practical.

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I think they mixed up how to stop a bank run with how to start a bank run. Ha. :slight_smile:


By the time FDR was in office in 1932 there was nothing much to withdraw. You can’t take money out of an empty bank account. Also many of the weakest banks had already failed. I get the bottom of that might have been in 1937? But you are not giving us the exact timing of the “FDR Pep-talk”.

I totally agree Andy. This has to be the dumbest trial balloon I have ever seen.

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Andy, if this does not turn into a European crisis that will be a miracle. It would mean the economy is stronger than we think going forward. While that is true it is not that simple for the next twelve months.

OMG. You just make stuff up. There were over 30,000 banks in the US in 1929. (Around 600 per year failed during the 1920’s, mostly small rural banks.) In 1930 there were 1400 failures. In 1932 around 2200. In the first three months before FDR was inaugurated, over 4,000. That still leaves 25,000 banks, presumably with bank accounts.

Of course. I wasn’t saying you could run the same play today. Yet that’s sort of what the FDIC did over a weekend. FDR said “Your money is as safe in a newly reopened bank…” and the FDIC said “Your money is safe. Every cent.” I know that SVB had attempted withdrawals of $42B on Thursday/Friday, but have been unable to find if that continued on Monday or beyond after the FDIC action.

Better reserve wouldn’t have helped. No bank can keep 50% of deposits in cash in the basement and make anything. The backstop emergency liquidity seems the best option, but (unfortunately) it would have to be done in secret, else a bank run would ensue, just like it did with SVB.



For my sake can you grasp what you are talking about? It makes conversations clearer and easier. I am talking about empty bank accounts when unemployment was rising to 25%. You are saying 25,000 banks were still in business. That is not the dispute.

You are claiming FDR got people to leave money in the banks…what money…whose money…where was the money?

If you comprehended the discussion your rebuttal needed to include aggregate bank deposit data for 1932 compared to 1928.


The Federal Reserve requires banks and other depository institutions to hold a minimum level of reserves against their liabilities. Currently, the marginal reserve requirement equals 10 percent of a bank’s demand and checking deposits .

Where did the 50% come from? Is that your imagination? You might say in light of the bank failure a huge amount of cash would have solved the problem but the idea of potentially raising the reserve requirement to 12% from 10% changes the risk profile of the bank’s loans, assets and liabilities. You can discuss 50% if you need to. You pulled it out of nowhere.

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Total banks loans and investments outstanding in 1929: $49.4 billion. In 1932: $33.8 billion (-32%). 40% of the decline is associated with panics, the rest with a ‘flight to quality’.

Between 1929 and 1932, the money supply and bank lending in the United States declined by more than 30 percent. In Contagion of Fear (NBER Working Paper 26859), Mitchener and Gary Richardson attribute much of this decline to the changing behavior of bank depositors. In 1930, after the collapse of Caldwell and Company, the largest bank-holding company in the South, runs on banks became widespread. The calling card of a panic, according to contemporaries, was the suspension of numerous banks in close proximity in a short period, such as within ten miles and 30 days…

The data demonstrate that the average number of weekly bank suspensions doubled after Caldwell’s failure in the fall of 1930, rising from 15.1 to 39.1. Panic-induced bank closures peaked in the last quarter of 1930 and in the last two quarters of 1931. Among the bank suspensions that occurred during panics, about 55% were associated with large regional or national events, while the remainder were due to local conditions.

The researchers find that when banks failed during periods that were not classified as panics, there was usually a “flight to quality,” with deposits flowing to Federal Reserve member banks; these banks were likely seen as more stable than non-member banks. During panics, however, the reverse was true, and deposits flowed out of the banking system, even from Fed member banks.



The post below yours shows there were still tens of billions in banks. More to the point, most of the early bank failures were small and rural banks which (like SVB, only different) had a non-diverse customer base. In the case of the 1920’s, they were mostly banks which served farming communities, so prices of volatile agriculture commodities roiled those banks. Worse, rumors began after the election but before inauguration that FDR was going to devalue the dollar, which would make the substantial collateral held by banks (land, farms) worth less, making banks insolvent. There were state banking deposit insurances but they were far too inadequate, and the number of banks that failed doubled and doubled again just before FDR was inaugurated.

Read the FDIC history extract I posted, which explains, you know, what happened.

The tens of billions that were still in banks. The depositors’ money. It was in the banks. Calm down.

I pulled a number because raising the reserve requirements from 10% to 12% accomplishes nothing when SVB saw more than 25% of its deposits vanish in 36 hours. Depositors attempted to withdraw $42 Billion between Thursday and Friday. How does having 12% reserves help when depositors demand 25% overnight?

Do you even know what a bank run is? Do you understand any of this?


From Bob’s link. The Money multiplier is introduced. It is critical in 1932 because people were not as active in the economy. In other words people were sitting tight with what they had. As you said the smaller banks had gone under. Many of the smaller depositors were wiped out. FDR had far fewer people to convince.

Again the 50%, now your 25%… and this really silly question, “How does having 12% reserves help when depositors demand 25% overnight?” Followed by this even sillier question, “Do you even know what a bank run is? Do you understand any of this?”

Goof, the reserves were raised or altered after the SVB debacle. We are discussing how to stave off such failures. That has to be done before the debacle. Do you even pay attention to what you are discussing?

In other words the higher the reserve requirement to a degree the lower the systemic risk of rate changes are to the bank. Going hypothetically from 10% to 12% changes the money management and lowers the risk. You are saying in hindsight after mismanagement 25% was needed. I am saying there is less mismanagement with a minor reserve requirement increase months in advance of FF rate hikes. Note I have not been following the requirements but I do remember a blurb that the requirements were changed a while back. Marginally 12% as a speaking point would have been better than 10%.

You do not understand the topic of reserve requirements. Banks that have failed do not get saved by higher reserve requirements. If you need to be on high at least understand the topic.

Why you would need 50% for a reserve requirement to save banks well in advance of bank failures demonstrates a complete lack of comprehension. Again you can not even save a failed bank with a reserve requirement after the failure has happened.

Please clearly think through the topic.

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The banking crisis is solvable apparently!

I can see where the USA is going with this one:

“This crisis was caused by people on iPhones and other devices, hearing on social media that some bank might be in trouble,” the Blackstone co-founder said. “They responded with huge withdrawals in a very short period of time, collapsing the bank.”

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Yes, without a run on the bank, there wouldn’t have been a run on the bank :wink:

Certainly, a big part of the problem was the bank’s structure and investments that enabled the run to occur, but when, say, someone like Peter Thiel joins in the fray and recommends others remove funds pronto just like his Founders Fund, others will get out their Androids and iPhones and make the withdrawal.



Sure you can. It is called a loan or an overdraft protection. At my bank I can have $0 in my account and still write a check (or make an e-bill pay) for $7500 and they pay it). Of course, I get charged interest and have to pay it back at some point.


Were you alive in 1932?

Did you create part of a bank run by going to your empty account and asking for all your money at once or in installments?

Sorry I am wasting bandwidth.

:rofl: :rofl: :rofl: