Thursday, March 28, 2013

Preventing bank runs in Cyprus

Cyprus is the latest Euro-zone country to be teetering on the brink of collapse.  A key problem facing regulators there is the threat of a bank run.   Briefly stated, a bank run can occur when the depositors of a bank all try and withdraw their funds at the same time.  In most cases, they choose to do this because there are concerns about the solvency of the bank.  However, the mere threat of a bank run can be enough to render a bank insolvent.

Which brings us back to Cyprus.   The linked video shows some of the lengths that Cypriot regulators are going to to try to prevent a bank run.

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Bank runs are rare - although we saw one a few years ago in the UK.