If we were to do this, what would happen to banks?
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If we were to do this, what would happen to banks?Say if we managed to tell majority (50%) of customers from particular bank to withdraw every single penny from their bank on specified day and time and transfer to another bank or keep it for few days, what would happen to that particular bank?
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Re: If we were to do this, what would happen to banks?The bank would run into a liquidity problem and would be dependent on other banks or the Bank of England supplying it with short term loans to provide them enough cash to meet the demands of their depositors.
However when people saw there was a run on that bank then customers of other banks may fear a run on the banking system so you could risk contagion to other banks. -
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Re: If we were to do this, what would happen to banks?And this wouldn't happen if banks hadn't given loans, investments and etc to people with our money?
Someone asked me a question, he is interested in economies.(Original post by Podcaster)
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Re: If we were to do this, what would happen to banks?Correct.(Original post by Rtcw)
And this wouldn't happen if banks hadn't given loans, investments and etc to people with our money?
Someone asked me a question, he is interested in economies.
If you deposited money in a bank and they did not invest it, then they would essentially be a vault service, guarding your money. If that was the case, then you would have to pay them to keep your money safe until a time you want to access it.
As it is, high-street banks use their customers' money to make investments and give out loans, paying salaries to themselves and interest to their customers from the proceeds.
As others have said around 95% of their (customers') money is tied up in investments at any one time, leaving only around 5% available as cash (or near-equivalents) at any one time.
If an exceptionally high number of customers want to withdraw money all at the same time (because they think the bank might default), that is called a Bank Run (a run on that bank). This is what happened to Northern Rock back at the start of the credit crunch.Last edited by Fallen; 30-07-2012 at 19:47. -
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Re: If we were to do this, what would happen to banks?Probably not much, whilst if they did actually let everyone withdraw the money theyd undoubedly not have enough and effectively go bankrupt [i believe banks only have to keep something like 10% max of depositers money in liquid form the rest is lent out as per how a bank works] but its more likely a freeze would be put on withdrawing money such as what happened with northern rock and in iceland.
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Re: If we were to do this, what would happen to banks?this happened with black horse (i think it was them, if not someone will correct me), they was very nearly bankrupt and are now a lot smaller then they used to be. so really it will destroy the bank, sometimes even bankrupt them.
anyway i can't see this happening.
