Thousands of Latvians lined up at bank counters and ATMs over the weekend in an attempt to withdraw their savings from Swedbank, the country’s largest banking institution.
Swedbank’s Latvian chief Maris Mancinskis on Monday called the rumors “absurd.” He said the bank is functioning normally and all depositors will have access to their funds via bank machines.
Mancinskis said some 10,000 Latvians withdrew over 10 million lats ($20 million) on Sunday.
Latvia’s 10th largest bank, Latvijas Krajbanka, is currently being liquidated after regulators uncovered fraud on a massive scale. Depositors were left without access to their money for days.
Via: Total Collapse
As rumors of imminent collapse began to build due to the bank’s reported liquidity problems in Estonia and Sweden, Latvians panicked and headed for their cash. This was the scene outside of numerous ATM’s in Latvia’s capital city, Riga:
There are various reasons for why a bank run may occur in the U.S., but the overwhelming driving mechanism will be panic. Once the public realizes that a particular insititution can’t make good on its debt or the country’s currency goes into a death spiral, depositors will be out in droves. ATMs will be limited on cash and generally allow withdrawals of about $300 per day. Likewise, banks will simply not have enough money to pay out the entire account balance of every depositor, so they will more than likely implement withdrawal restrictions similar to what you might get from an ATM.
At that point, the future of your finances will fall into the hands of the federal government by way of the FDIC, which itself is wholly under-capitalized and unable to effectively cover the deposits of a single major U.S. bank, let alone the entire banking system.
In Latvia the situation looks as if it is somewhat controlled (or not everyone has yet realized what is happening), but as we pointed out last week when it was reported that Greeks were quietly withdrawing their money from their banks, if you are late in learning of an imminent collapse or don’t make the decision in time, you may very well joins thousands of other panic stricken account-holders in the parking lot of a bank that has no more money left to issue.
There will be very little, if any, warning before such an event occurs. That’s why they call it a bank run. One morning depositors wake up and learn that their life savings are about to be disappeared. The inevitable emotional effect when faced with such losses is stress, anxiety, panic and fear. This is what it looked like at Northern Rock bank in the UK after the bank was declared insolvent in 2006:
Not to worry though, because this can’t happen in the United States. We’ve got a modern day centrally managed economy, secretive monetary policy, banks that will do whatever it takes to hide losses, and financial regulatory agencies that are happy to look the other way if there’s any sign of trouble.