BBC: Would a mass cash withdrawal bring down the banks?

[PatColo]

22 November 2010 Last updated at 10:05 ET

Would a mass cash withdrawal bring down the banks? (http://www.bbc.co.uk/news/magazine-11811238)

http://news.bbcimg.co.uk/media/images/50096000/jpg/_50096520_eric.304.jpg
Cantona wants a 'real revolution'

Former footballer Eric Cantona has called on a new form of direct protest - a mass cash withdrawal - to bring down the banks. So what would happen if everyone tried to withdraw their savings?

[article doesn't copy/paste too good, read at link]

[Filthy Keynes]

Some of the comments below the article show that there might be a backlash against the ones who want to help bring down the banking system.

Don't you just love how every where you turn EVERYBODY is so concerned about the "POOR"? The same goes for the word "greed" - two of the most overused words in the English language.:


Robert, Rotterdam

I think this article is short-sighted. It fails to consider the effect on the banks as businesses. Withdrawing assets from a bank includes the possibility that when customers return their money they may do so to different banks. This possibility would lead to uncertainty in the stock market and could lead to a collapse of the value of bank stock. However ultimately where the banks would suffer, the poor would suffer more. I cannot think of a more incredibly stupid idea than to deliberately wreck the European banking system. The only beneficiaries would be in Asia, and possibly Brazil.

[Ash_Williams]

I think it would be far more effective than the article suggests. It would have to be enough to reach the tipping point where ATMs are empty so everyone else withdraws more than they normally would when they find an ATM that isn't empty.

[platinumdude]

That would do nothing.

Maybe everyone should pay down their debt. This would hurt them good.

[cthulu]

That would do nothing.

Maybe everyone should pay down their debt. This would hurt them good.


That's where bernanke says we need more inflation and gives the banks a couple trillion.

[Twisted Titan]

From the footballer who once kung-fu kicked an abusive fan, a new form of direct action without any violence.

Take your money out of the banks and spark their collapse, says Eric Cantona, in advice to the students and public sector workers holding protests in France and the UK.

"We must go to the bank. In this case there would be a real revolution," says the French former Manchester United star in a newspaper interview that has been filmed and widely viewed on YouTube.

"It's not complicated. Instead of going on the streets and driving kilometres by car you simply go to the bank in your country and withdraw your money, and if there are a lot of people withdrawing their money the system collapses. No weapons, no blood, or anything like that."

So how effective would this form of protest be?

In the very unlikely circumstance of everyone heeding Cantona's call, there are obvious practical hurdles preventing that number of people getting to cashpoints or queueing up in branches to withdraw their savings.


But setting those aside, the banks would need to find more cash, because only about 5-10% of people's savings are kept in banks' tills. The rest is lent out or invested.

"Banks only keep a small fraction of their deposits as cash, so the cash machines would run out and cash in the branches would run out," says Richard Wellings, deputy editorial director of the Institute of Economic Affairs.

"They could go to the Bank of England [for some cash] or they could sell assets to release cash but they probably wouldn't bother because it would just be a temporary blip."


Although some branches may have to close, it would be very different from a conventional run on a bank because depositors would know it was related to a protest and not an underlying problem with the bank, so confidence would not be hit in the same way, says Mr Wellings.

Furthermore, all deposits up to £50,000 are government-guaranteed, through the protection of the Financial Services Compensation Scheme, so that would help strengthen confidence and prevent a panic.

All their digital transfers would carry on as normal, this would just affect the physical payments of cash. These could be rationed or temporarily halted.

"The only effect it would have is to inconvenience a lot of people when they go to the cash machine and try to withdraw their money but find there's no cash there. But it would not cause the collapse of the banking system. Notwithstanding the big problems, I can't see it having much of an effect in reality."


When there is a run on a single bank for reasons of confidence, then the government can step in, as it did for Northern Rock in 2007.

But if there was ever a collective panic sparked by a mass withdrawal against all the banks, then the consequences are far more serious.

In 2001 during the Argentinian economic crisis, large numbers of people began taking their cash out of the banks, so all bank accounts were frozen for months.

[Sparky]

Cantona: "...and if there are a lot of people withdrawing their money the system collapses."

If I'm an average citizen reading this, why would I want to contribute to a system collapse? That needs to be made clearer to the general public.

[basplaer]

They are already running commentary against this:

http://www.guardian.co.uk/commentisfree/2010/nov/23/eric-cantona-bank-protest

Eric Cantona's bank protest would hurt us all
Cantona's call for a mass cash withdrawal is understandable but wrong. Unfortunately, we need banks as much as they need us

Eric Cantona has suggested we all withdraw our money from the banks in a mass protest. That will teach them a lesson! As the Irish economy is attacked by bond traders, I have some sympathy with the former footballer's anger. His desire for a grand gesture is widely shared, but I'm afraid his grasp of economics is slim.

For a start, if we all turned up at our banks and demanded our savings back, it would not cause an immediate collapse. It would be hard to turn those digital accounts into cash. Most of us have a daily limit on cashpoint withdrawals of about £200. And anyway, high street branches carry a float of less than £5,000 in cash. Larger sums have to be ordered.

It is comforting to think about our small nest egg somewhere safe in a bank vault, but in reality banks have lent out that money or invested it elsewhere.

That is the worrying thing about the financial system. It is all based on a confidence trick. As long as we have faith in the system and believe our savings to be secure, banks are able to function normally. But if we lose that faith and want to keep our hard-earned cash under the bed, it would not be possible to return all of our savings. There is not enough cash in circulation.

We hate to admit it, but we need banks as much as they need us. Our modern economy is too complicated to function with cash only. Many of us owe the banks money in the form of mortgages and loans. Those with savings want to earn some interest to help keep up with inflation, although there is very little on offer at present. A cash economy would be extremely inefficient and inconvenient – no online purchases, no credit cards, not to speak of the security risk of keeping a pile of cash in the house.

There have been periods in history that have seen a mass loss of confidence in the banks. In the 2001 Argentinian debt crisis, the public rushed to withdraw their money. The government responded by freezing bank accounts and closing branches. People briefly had to resort to barter for their transactions.

Ministers will not risk the collapse of the banking system, but will do all they can to shore up public confidence. That is why Ireland is being bailed out today.

The comments section is mostly a mixed bag of sheeple-talk, but one stands out:


For a proper low-down on why there is not enough cash in the banks to cover everyone's potential wihdrawal, I would urge everyone to watch Money as Debt

It explains fractional reserve banking and why the whole banking system is, as Deborah rightly says, built on a confidence trick.

Cantona's idea is noble, but it would not force the collapse for the reasons Deborah has outlined. But the system will fail when the public realises that the banks charging the public interest to loan out money they do not have.

[Joe King]

The only way to "bring down" the banks would not so much be to just withdraw cash, but to quit using their services altogether.

As long as cash is but the physical representation of debt that already exists, to withdraw cash from accounts en masse just to go pay your debts with it, accomplishes little. As it will all just end up back at the bank fairly quickly.
Same as an electronic transfer would have done in most cases, but without the hassle of having to stand in one line to get it just to have to go stand in another to give it away to someone else who will simply pay their debts with it.

As it is now, if no one ever asked for cash we'd already be "cashless". The only thing missing is your "digital wallet" so that you can transact personally.
The only reason they actually print physical "dollars" is to satisfy the banking systems need for cash so that they, in turn, can satisfy their customers.
Which would be you, me or anyone else who might have a bank account and at some point ask for cash.
i.e. either when cashing a check or making a withdrawl.

[Ash_Williams]

The reason it's a protest is that it's the one way of taking your money out of the system. If you write a check it's just money going from one bank to another and is still in the system. If you use your debit card to buy gold, it's still money in the system.

Of course, if you have debt you can pay that down, but I think the people this protest would appeal to most don't have any debt in the first place so the only way for them to take money out of the banking system is with cash.

[steyr_m]

I don't trust anything political or anything like this from the BBC...

[Joe King]

The reason it's a protest is that it's the one way of taking your money out of the system. If you write a check it's just money going from one bank to another and is still in the system. If you use your debit card to buy gold, it's still money in the system.

Of course, if you have debt you can pay that down, but I think the people this protest would appeal to most don't have any debt in the first place so the only way for them to take money out of the banking system is with cash.
It matters not if the people getting cash are debt free if they're just paying someone else who isn't.
i.e. if in protest you get cash and then go pay your utility bill, but all the utility co does is deposit it right back into the bank and they use it to pay their debts, exactly what has been accomplished? I mean, other than having to haul cash around?

It accomplishes nothing more than if you'd written them a check, or made an electronic payment. End result is the same.

The public asking for large amounts of cash would simply cause banks to put a limit on the amount of cash that can be withdrawn at any one time.
Or, it could give the gov the excuse it needs to go cashless.
Kinda like how the people demanding their gold in 1933 was used as the excuse for the gov to say "no more gold" and make people use only paper.

Now it would be people demanding their paper that could cause gov to declare, "no more paper" and make everyone only use electronic means of transferring "money".

[learn2swim]

It's just another excuse for a "cashless" society. Problem-reaction-solution.

[Ash_Williams]

It matters not if the people getting cash are debt free if they're just paying someone else who isn't.
i.e. if in protest you get cash and then go pay your utility bill, but all the utility co does is deposit it right back into the bank and they use it to pay their debts, exactly what has been accomplished? I mean, other than having to haul cash around?

It accomplishes nothing more than if you'd written them a check, or made an electronic payment. End result is the same.

Well obviously you gotta not spend it, the point is to take it out and keep it out of the system. It wouldn't matter if they set daily limits 'cause you could just go back the next day and take out more, and the day after that. Use electronic payment to pay your bills and then take out as much you can in cash.