Don’t mention the R word

Here’s a very interesting article from BBC on the possibilities of a bank run. I suggest to anyone interested in the Greek and European financial crisis to read it. The article was written by Laurence Knight, BBC Business editor.

R is for run. As in bank run.

If you’re wondering what a bank run is, think of Northern Rock. It is a sensitive topic, not least here at the BBC.

But it is a subject that is being increasingly discussed by investors and economists in the eurozone. One can assume it is also being discussed in private by European policymakers too.

Because the fact is that Europe’s banks already face what amounts to a slow-motion run by big institutional investors.

They’re not queuing up at branches. Instead they are withholding their money at the click of a mouse.

Major US money managers and lenders are pulling out of the eurozone, as is clear from the cost to eurozone banks of borrowing in dollars right now, which has returned to extreme levels last seen during the global financial crisis.

Moreover, data from the European Central Bank (ECB) suggest that Europe’s banks themselves are losing confidence in each other – though not yet quite as badly as in 2008.

They have increasingly been putting their cash in the safe hands of the central bank, rather than lending it to each other, despite the punitively low interest rate the ECB pays them.

The rest of the article is here.

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