Sunday, September 16, 2007

A Run on a Bank

OK, so this isn't about Arizona Economics, but a run on a bank is awfully rare so this merits taking notice.

LONDON (AP) - Hundreds of customers lined up to withdraw their savings from a British mortgage bank Saturday, ignoring government assurances that their money was safe despite the bank's request for an emergency loan.

Police were called in some cities to steer panicked crowds away as Northern Rock bank branches closed for the day.

Fears have spread over the bank's request earlier in the week for an emergency Bank of England loan amid the global credit crisis. Northern Rock, Britain's fifth-largest mortgage lender, is the first British bank in 15 years to be bailed out by regulators.

Customers withdrew $2 billion from the bank Friday, The Financial Times reported, citing an unidentified person described as close to the situation. The bank declined to confirm the figure, which represents 4 percent of its deposit base...

A run on a bank is usually caused by a crisis in confidence rather than a real solvency issue. Note that they still expect to make a substantial profit this year.

Northern Rock has around £24 billion of customer deposits, though some of the money is locked up for months in long-term accounts. It said yesterday that it still expected to make an underlying profit of £500-540 million this year.

We'll cover money and banking in macro in about 3 weeks.



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