How to Not Stop a Bank Run

In the US, when a bank fails the FDIC swoops in to take control.  Often arriving on a Friday, a bank that cannot meet its obligations is often completely re-organized and recapitalized over the weekend and opens for business on Monday as if nothing happened.  The executives are pushed out to the street and new management is found, often another bank that can take over as soon as possible.  They’ve done this 30 times so far this year. It’s all paid for by insurance premiums paid over categories of risk at all banks across the US.

In Europe, they don’t have such a mechanism.  They have something called “Emergency Liquidity Assisitance” (ELA) which is run through the central banks of the member nations.  No one knows which banks are getting this money, and the executives to run them as usual.  The exact amount has been buried in the balance sheets of the European Central Bank (ECB) as “other claims”, so we don’t even know how much it is.  But as money flees Greece and some other nations there’s a whole lot more “other” floating through Europe.  And the secrecy shows just what’s wrong with a banking system set up by and for bankers.

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