Limited rationality

Economist
June 14, 2012

Much has been made of the amount of deposits that has left the Greek banking sector since the start of the debt crisis: some €70 billion in total, leaving around €160 billion-170 billion still in place. A rush of withdrawals after the first Greek election on May 6th sparked fears of a full-scale run, although the pace has slowed since then—“a dribble”, says one Athens-based banker.

The outflows may pick up again in the final days before this weekend’s second election: one Athenian businessman says he will be taking €1,000-2,000 out of his account in the next couple of days so that he can have cash on hand in case the vote leads to chaos. Multiply that across many accounts, and things will start to feel very hairy again.

But the greater mystery to some is not how many deposits have gone, but how many remain. When banks need to be recapitalised, when the guarantee of the Greek government carries little weight, and when there is a risk of redenomination from euros into drachmas, the rational thing to do is to take money out of the bank, to either send it abroad or put it under the mattress. Why aren’t more Greeks doing it?

Conversations with a small sample of Athenians suggest a number of explanations. One is emotional: some people see it as a matter of honour not to turn their back on the country by taking money out of the bank. “Part of this is about not contributing to a problem I want to avoid,” says a local lawyer. “Banks need deposits to be able to extend funds, and I don’t want to be part of the problem.”

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