It’s so much easier to conduct a bank run than in the old days. The Greeks are in full panic mode, withdrawing billions from Greek banks. There are some lines like the 1930s, but these days a telephone call or internet transfer will accomplish the same result without it being visible to the TV cameras. Money is a funny thing. It’s just a piece of paper. The only thing that gives it value is trust. People must believe it is worth something. Have the politicians and central bankers of the world given you a nice warm feeling over the last few years? Do you trust them? The average person may not be that intelligent. Bankers and politicians have counted on this fact for decades. But they have gone too far. The trust is dissipating rapidly. Greeks are panicking today. The Portuguese will panic tomorrow. The Italians next week. The Spanish the week after. Trust is a funny thing. It is built up over a long period of time, but it can collapse suddenly.
I’m sure glad it can’t happen in the U.S. We have trustworthy bankers and politicians. Our currency is the strongest in the world. We’re the chosen people. We’re the shining beacon on the mountaintop. We are fiscally responsible. Right?
How Europe’s banking crises threaten the eurozone
What you’re seeing here is Greece down to its last €165 billion or so in deposits, and at the margin the rate of decrease is probably accelerating, despite the fact that most sensible Greeks will have already stashed their hard-earned euros safely outside the country a long time ago. I don’t know what the minimum amount is that Greeks need on deposit just to serve their near-term liquidity requirements, but we’re not there yet: Greece’s total population is only 11 million. So there’s a long way further this number can fall — especially since the Greek banking system isn’t receiving the support it needs from the ECB.
The more realistic constraint is simply that many Greeks lack the education and sophistication and language skills needed to move their money out of the country. This, for instance, is telling:
A 60-year-old textiles store owner who gave his name only as Nasos said he had transferred 10,000 euros over the phone to a bank in fellow euro zone state Cyprus on Tuesday afternoon.
If Greece exits the euro, there’s no doubt that there will be a massive banking crisis in Cyprus — it’s pretty much the least safe haven conceivable for someone looking to move their money from Greece. The only reason to move money to Cyprus rather than, say, Luxembourg is that they speak Greek there, and the logistics of moving money to Cyprus are easier than the logistics of moving money to any other country.
Meanwhile, in the rest of the eurozone periphery, foreigners are already pulling their deposits from Italian banks, while the Spanish banking system is only getting increasingly precarious:
All of which is to say that the causal relationship between sovereign crises and banking crises is rather more complicated than one causing the other: in reality, they cause each other, in a vicious cycle which clearly isn’t close to being broken in any of the southern European states. Greece is further along in the cycle than Spain or Portugal or Italy, but they’re all still moving in the wrong direction.
Greece’s banks, remember, are the mechanism by which the rest of Europe will force Grexit. Banks are the circulatory system of any economy: if they stop pumping money, the country dies. And so, in extremis, Greece will need to do a complete blood transfusion, replacing all euros with drachmas, if the only alternative is to see the flow of euros dry up entirely.
In the meantime, however, expect to see deposits continue to leave Greece — and the rest of the European periphery as well. Even if your euros are reasonably safe in a big Italian bank, they’re surely safer in a big German bank. And the first thing that all depositors want is safety. Now that questions have been raised about the solvency of various southern European banking systems, it’s going to be very hard to reconstitute the eurozone in a robust fashion. The Eurozone was never designed to cope with millions of Spaniards moving their money out of the country, behaving like middle-class Venezuelans with offshore accounts in Miami. And it also was never designed to cope with capital controls. But increasingly, it looks like we’re going to end up with one or the other. Or both.
flash says:
..just little blip in the euro-zone. I’m sure the market had this priced in.
http://www.reuters.com/article/2012/05/16/us-ecb-greece-banks-idUSBRE84F0SN20120516
(Reuters) – The European Central Bank has stopped providing liquidity to some Greek banks as they have not been successfully recapitalized, the ECB said on Wednesday, confirming news earlier reported exclusively by Reuters.
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16th May 2012 at 3:10 pm
Administrator says:
Capital Flight From Greece Accelerates, €5bn in May, Exodus Even Hits Time Deposits; Fed, ECB, BOE, BOJ Balance Sheet Comparison
Capital flight from Greece continues, €5bn in May, not counting orders to buy foreign bonds. The exodus now includes cashing out time deposits as reported by the Financial Times in Greek banks see steady deposits outflow.
Greek banks have seen a steady outflow of deposits this month, reflecting savers’ concerns over the failure of political leaders to form a coalition government and the prospect of another inconclusive election, which will be on June 17.
Athens-based bankers said withdrawals exceeded €1.2bn on Monday and Tuesday – 0.75 per cent of deposits – as President Karolos Papoulias failed in two final meetings with conservative, socialist and leftwing leaders to form a national unity government.
A senior Greek banker said the experience of the past few days “gives rise to concern that withdrawals may accelerate”. Another banker said: “We are seeing something very unusual, customers breaking their time deposits in order to withdraw funds.”
“The situation with the banks is extremely difficult … there is no panic but there is great fear which could turn into panic and the resistance of the banks is very limited just now,” Mr Papoulias told the political leaders on Sunday, according to a transcript of the meeting released by his office.
The president cited a briefing by George Provopoulos, the central bank governor, who told him that withdrawals last week reached €700m, excluding funds used to buy German bonds and other foreign securities.
One of the Greek bankers said that since the end of April, deposits had been reduced by some €5bn, including orders to buy foreign bonds and securities.
Why anyone would have even a cent in Greek bank accounts is a complete mystery. Certainly the smart money left long ago.
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16th May 2012 at 3:29 pm
Administrator says:
If Wishes Were Fishes
•If monetary stimulus worked, the LTRO would have been a spectacular success already.
•If monetary stimulus worked, housing in the US would be in full-blown recovery.
•If monetary stimulus worked, Japan would not have a debt-to-GDP ratio above 200%.
•If printing worked, Zimbabwe would have been the greatest country in the world long ago.
It is really sad to see otherwise fine analysis go straight into the toilet with such ridiculous proposals as solutions.
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
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16th May 2012 at 3:31 pm
platoplubius says:
If the Greeks could form a govt they might try to implement more stringent capital controls! Ahh…I love the smell of panic in the morning! (although this is afternoon, panic and fear still smell sweet!)
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16th May 2012 at 4:50 pm
Muck About says:
It’s called “Run in circles, scream and shout!” and it will be coming to a neighborhood close to you very soon now.
MA
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16th May 2012 at 5:25 pm
Ron says:
Well people here in the USA are so far away from that Greece place and our government is to smart to get us in such sad shape.Were lucky to have long term thinking people in charge here.
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16th May 2012 at 5:56 pm
Working man's chest surgeon says:
Hey Admin,
this deserves it’s own post
http://www.rollingstone.com/politics/blogs/taibblog/accidentally-released-and-incredibly-embarrassing-documents-show-how-goldman-et-al-engaged-in-naked-short-selling-20120515
Goldman Sucks’ own lawyers screw them over. Can’t make this stuff up.
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16th May 2012 at 6:22 pm
ThePessimisticChemist says:
I wish my company just paid me in cash.
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16th May 2012 at 7:12 pm
Administrator says:
LOOKS LIKE SPAIN DECIDED TO PANIC A LITTLE SOONER
Nationalized Spanish Bank Plummets On News Of Bank Run
Submitted by Tyler Durden on 05/17/2012 07:21 -0400
The problem with bank runs is that once they start, they don’t stop. And while the world was conveniently distracted by events in Greece, debating whether or not people were withdrawing money in droves (they were), the real bank run happened elsewhere, namely in Spain, where just nationalized bank Bankia moments ago plunged 30% and was halted following an El Mundo report that “customers had withdrawn €1 billion over the past week.” In other words – a bank run (but whatever you do, don’t call it that – it’s not the politically correct and accepted nomenclature) which has sent shockwaves through Europe, pushed the EURUSD under 1.27, and bond yields in their traditional “Europe is open” direction – wider.
From FT:
Shares in Bankia, the Spanish bank which was part-nationalised last week, plunged by over a quarter on Thursday morning, after a report that customers had withdrawn €1bn from the bank over the past week.
Shares fell 27 per cent to €1.21 after El Mundo, a national Spanish newspaper, reported customers had withdrawn €1bn from the bank over the past week, citing information from a recent board meeting.
The self-styled “the leader of the new banks” was formed from seven cajas last year and has now shed nearly 70 per cent of its market capitalisation since its shares were listed in July of last year.
The fall helped to drive the broader IBEX 35 index down 2 per cent to 6,480.7.
The news has started to spill over to other PIIGS banks, and very soon all Italian banks will resume being suspended limit down on fear that the bank run contagion, pardon, the withdrawal meme (h/t William Banzai), because in this fake, artificially supported world, one is never allowed to call a spade a spade, has commenced.
In th meantime don’t panic: after all, just recall the Bank of Spain statement which promised that despite the Bankia nationalization, that “BFA-Bankia is a solvent entity that continues to function quite normally and customers and depositors should have no concern.”
Turns out depositors had a few concerns…
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16th May 2012 at 7:48 am
Administrator says:
One for the “You can’t make this stuff up” folder.
From Art Cashin:
Ya Can’t Make This Stuff Up – An interesting example of the problems in Greece may be seen in one of its recent attempts to collect taxes.
Property taxes were notoriously unpaid. The government decided to combine those taxes with your electric bill. The concept was simple. Pay your property taxes or your lights will be shut off.
The proposal brought outrage from the unions, who held mass demonstrations and sued in the courts. The courts put a stay on enforcement (putting the lights out) and questioned the whole concept.
The public, who had been paying their electric bills, refused to pay the new combined bills. Lacking any income, the power companies faced collapse. To avoid total chaos the government canceled the plan. What would Socrates think?
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16th May 2012 at 9:48 am
Bruce says:
The DOOM is here.
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16th May 2012 at 7:13 am
Tallarook, Gillard, Rudd, Greece, Spain, Fukushima, #Jo Chandler, and the sizzle of snags on a barbie | Iain Hall's SANDPIT says:
[...] If It Smells Like Panic, Looks Like Panic, & Sounds Like Panic – It’s Probably Panic [...]
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16th May 2012 at 4:01 pm
The taX factor | Henrytapper's Blog says:
[...] If It Smells Like Panic, Looks Like Panic, & Sounds Like Panic – It’s Probably Panic (theburningplatform.com) [...]
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16th May 2012 at 2:39 am