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Watching the Banks



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Of all the potential  threats that hover around the Eurozone, one of the most dangerous will be if we start to see a series of bank runs, beginning in (obvious choice) Greece, and then spreading to, say, Italy. As Argentina discovered in 2001, the combination of an unstable currency ‘union’ (in its case the dollar/peso peg) and a run on the banking system can be truly devastating.

That makes stories like this worth watching:

Bankers in Greece say worries about the resilience of local banks, coupled with a rise in burglaries, has helped trigger a surge in demand for safe deposit boxes for those who have yet to set up accounts outside in the country…Retail bank deposits in Greece have plunged to five-year lows as fears mount the stricken nation will fail to meet international lenders’ bailout terms and restructure loans by March, raising the spectre of a ditched euro, a return to the drachma and a sharp devaluation.

Read the story carefully, and you’ll see that the situation has calmed somewhat since Prime Minister Papandreou’s undignified exit, but the unease clearly remains:

With ordinary Greek grandmothers now joining the wealthy in seeking sanctuary from economic chaos, banks have embarked on an interest rate war, with some smaller institutions sweetening terms to up to seven percent to woo customers.

I wonder how the economics of that will work out for those “smaller institutions”.

And then there’s Italy. So far the drop in private deposits has been comparatively modest (4 percent in the last year, according to this account), but the anecdotal evidence of growing anxiety (Italians buying property in Berlin) is striking even if the numbers are still relatively small.

But:

A manager at a top asset management group in Bologna conceded that “dramatic” media coverage had worried people, adding that large clients had placed cash in safes and that deposit boxes in the area now had “no spare capacity”.

 “They’re worried about a default and a run on the banks Argentina-style,” he said. “I personally am managing to keep my clients though I must admit while I spent 10 minutes with them before, I am now spending a couple of hours to explain things.”

Well, the media coverage is not likely to get any less “dramatic”…



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