Bank Run
In a bank run (English as: " rush to a bank ", German: switch tower, colloquially: " bank run " ) try many investors of a bank in a timely manner their deposits ( deposits ) stand out. Since a bank usually holds only a fraction of their assets as cash and the main part is invested in longer-term assets, this can lead to a bank failure.
Mechanism
The maturity transformation function of banks running smoothly, if only a part of the savers of the option to deduct the deposits at short notice, makes use. In the normal Abhebegewohnheiten the institutions are in fact set. However, when rumors of an impending problems or difficulties are known, it is feared that the depositors withdraw their deposits en masse. The risk that even vague guesses can trigger a rush of depositors to the bank counter is due to the fact that bank deposits sequentially, so according to the principle " first come, first served " can be operated. In this regime it is important for the individual savers to the fact that he quickly withdraws its deposits at a skew of the bank as other depositors.
There are several possible reasons for a bank run:
- In a hyperinflation may be the one that stands out as his money first to buy the most goods for the same amount of money.
- In a ( possibly incorrect ) information that the bank is in a crisis or even threatens to become insolvent, the investor has to worry about deposits and its risk of loss is greater the longer he keeps his deposits in the bank. Through the Run, which can then lead to actual insolvency of the bank, it assumes the character of a self-fulfilling prophecy.
- It can also be a random mass withdrawal, the other investors in the expectation that this must have a specific reason to blindly connect ( " herd behavior ").
In all these cases it is for the investor an optimal strategy to participate as early as possible on the run, because for the chance to get his money, is the highest. Thus it is the case, a Nash equilibrium. However, this situation is unstable, it can lead to the collapse of the bank and the loss of most of the deposits.
Examples
- Great Depression
- Argentina crisis
- In the summer of 2007, there was a run on the British bank Northern Rock. Northern Rock, had, due to a one-sided funding strategy, which mainly focused on the money market liquidity bottlenecks, since money market refinancing prices increased immensely due to shortage of liquidity and repricing of risk by investors.
- In the fall of 2008, with the Swiss UBS to a bank run, in which the bank within a short time 25 billion CHF funds were deducted. Then the Swiss Confederation had to trigger an emergency plan they had worked with UBS and the central bank to ensure the liquidity of the bank.
- In spring 2012 a lot more cash than usual was lifted from the banks and this brought in many media using the term bank run in conjunction in Greece and Spain.
Demarcation
In Germany every day billions of euro cash will be paid in and paid out at the Bundesbank, thereby arise even in the monthly sum of differences between the amount of deposits and withdrawals, which usually amount to billions of euros. October 10, 2008 was a particularly strong day payout with 4.2 billion euros cash payout while on this day only 1.5 billion euro cash was paid. The month of October 2008 was the month with the biggest money growth and indeed around 42 billion euros.
In December, the amount of cash in the euro area every year significantly increases and decreases in January significantly from, for example, in December 2007 20 billion increase in January 2008 € 12 billion reduction, in December 2008, 19 billion increase, January 2009 12 billion reduction, December 2010 18 billion euros increase, January 2011 13 billion euro reduction, in December 2011, 16 billion euro increase in January, 2012 14 billion euro reduction.
Measures
Deposit insurance
If a saver can rely on the repayment of his investment, regardless of whether the other depositors pull their deposits prematurely or not, there is no rational need to deduct the deposit prematurely own. Therefore DGS can prevent a bank run, as they guarantee the liquidity of the bank, especially in the crisis. This is the investor on the issuance of securities or the ability to transfer the assets to another bank that granted security, not to lose his deposit. A deposit insurance can be state- and privately organized. A private institution must have sufficient collateral, while the state will be refinanced by raising taxes. In Germany, similar to an insurance deposit insurance on a voluntary basis rather than by deposit banks annually a sum of money on deposit insurance.
In stochastic proportion of investors with consumer expectations in a period (see below: stochastic alpha), in addition the optimal allocation can be achieved by an ex -post control.
Suspension of the repayment
To prevent a bank run, the bank may announce, from a certain block threshold suspend payments ( suspension of payments ). This lock threshold is fixed in the contract and made public. So only those investors will want to withdraw their deposits, which actually need the money; all others will be otherwise worried about their payouts, as it remains unclear when the lock threshold is reached and the investors must be clear that any further withdrawal is associated with an increasing risk.
However this only works optimally when the proportion of savers who want to withdraw early, is approximately known. Otherwise, the problem is to determine the threshold. If this is too low, investors are wary of the bank and not invest; this is too large, then the bank must provide a disproportionate share of funds available with which they can make little or no profit.
Direct limitation
The problem of bank run arises from the fact that the bank can not make a significant profit by the mere storage of cash. It is therefore anxious to exploit their assets profitably by investing in profitable investing or lends money while back gets an allowance in the form of lending rates. Long- term investments often bring a higher profit than short-term. In a bank run now it is the bank in its available time is not possible to convert the long-term investments back into cash, so that despite possibly sufficient existing capital insolvency is imminent.
Theoretical analysis of the Bank Run: The model of Diamond and Dybvig
Deposits in the form of cash owned by the customer and can by the attribution of a fixed value so that at an exchange neither loss nor gain can be achieved. For the customer, the money is thus a constantly available reserve with which he can cover his fluctuating demand for durable goods. The bank, however, can thus operate in the opposite of shares or precious metals no trade. Diamond and Dybvig go in their model of time- varying editions and also from a risikominimierendem behavior of the saver. The payments to the investor will take place one after the other.
The flow is divided into two periods. There are two types of investors: The first investor is interested only for what benefits he may receive in a period with its assets, the second type considers the total benefits over both periods. Increases the ability consistently to the increase of utility accepts both investors shrinking. Both investors can opt for a period of time, whether they want to invest. Suppose there is an investment opportunity in which over both periods, a small profit is achieved, however, with only one investment period, no change occurs. In this case, the investment for investors 1 is uninteresting (that is, they do not invest or request their deposits back after a period ), for feeder 2 the investment is worthwhile and therefore no investor will deduct from type 2 its investment for a period of time. The situation is stable.
Diamond and Dybvig have now shown that through the intervention of a middleman ( the bank), which invests even without monetary profit, an unstable situation can arise. To this end, only one possibility, investors must be given from the Type 1, still get through risk between the two types of investors with a smaller profit in just a period of time.