Bank Liquidity and
Bank Runs Each bank has to be liquid, which means that it should have sufficient financial resources to meet its obligations as they fall due or be able to obtain such funds at reasonable costs.
But there would be a nationwide
bank run if they reopened the banks without strict limits on cash withdrawals and transfers overseas.
Fear of a
bank run has led the government, which is led by Nicos Anastasiades, to keep banks closed until at least Thursday.
1) The view on fundamental-based
bank runs argues that
bank runs occur when depositors receive negative information about their bank's portfolio returns or about an aggregate liquidity shock.
In the case of deposit insurance, many countries have raised deposit insurance coverage while some even have provided full coverage in order to curb
bank runs.
During the Great Depression, the prospect of
bank runs became reality.
Moreover, heavy withdrawals mean
bank runs, and trigger bank closures, which throttle the availability of credit, especially to small businesses, and impair the economy's ability to channel financial resources towards their best use (Mankiw, 2008).
Without them, Saturday morning would have brought even more ruinous
bank runs, with legions of depositors descending on their banks in desperation at the very moment the new president took the oath of office.
Government provision of deposit insurance is often rationalized on the grounds that it stabilizes the banking system by removing the incentives for depositors to engage in
bank runs.
When the subsidiaries select "payment," the
bank runs the netting cycle, which calculates how much each buyer owes the seller from a global point of view.
Many forecasters warned, despite all the evidence to the contrary, that
bank runs would ensue in the spring of 2002, when the government lifted full guarantees on all time deposits at the banks.
According to the first theory,
bank runs are exclusively driven by changes in economic fundamentals, such as a deterioration in the return on investment.
