How to stop a run on bank cheaply [hopefully] Wednesday, March 19, 2008
Bank runs for beginners.
Lesson 1. Bank runs are a direct result of a loss of confidence in a bank
Lesson 2. Confidence is affected by rumours
Lesson 3. Rumours may be true or false or in between
Lesson 4. False rumours may be started maliciously and/or for financial gain
Lesson 5. People can be seriously hurt by rumour
When false rumours may prompt a run on a bank with the chaos that brings i.e. bailouts, job losses, panic, the Bank of England gets very angry. The turbulence in HBOS shares on claims of liquidity issues and central bank emergency funding have been categorically denied by the Bank of England. In an unprecedented move, it has apparently been ringing press and TV newsroom to categorically set the record straight and demanding such stories stop.
In parallel the FSA has announced it is to hunt for anyone manipulating the market with such rumours in order to profit.
One has to hope that will kill the matter off. However, there will inevitably be many depositors who will make pre-cautions withdrawals and no doubt, HBOS branches will receive extra deliveries of cash tonight to ensure that the panic does not flare up again. Notably, it does place the Bank of England in a position that were problems to subsequently occur, it may stand accused of misleading the market and held financially liable. For that reason, of which it will be fully aware, you can take some comfort from its assertions/assurances.