The euro exodus from Greece and Spain

by Douglas French

Christian Science Monitor
June 5, 2012

Wary depositors are hauling billions of euros our of Greek and Spanish banks, reflecting the nervous mood of the people.

Wary depositors have been hauling billions of Euros out of Greek and Spanish banks over the past few weeks. Since 2009, Greek depositors have withdrawn $4 million a month from that nation’s banks, while Spanish bank customers pulled 31 billion euros from Spanish banks in April alone.

More than any election result, bank runs reflect the mood of the people. After all, depositors consider bank deposits their property. The bank is just holding the money for them. Any bit of nervousness, and it’s run first and ask questions later. There is no upside to trusting the bank. If it goes broke, the depositor’s property is gone. At best, the bank doesn’t fail and the property remains. There is no compensation for the sleepless nights.

Murray Rothbard explained in Making Economic Sense,

But in what sense is a bank “sound” when one whisper of doom, one faltering of public confidence, should quickly bring the bank down? In what other industry does a mere rumor or hint of doubt swiftly bring down a mighty and seemingly solid firm? What is there about banking that public confidence should play such a decisive and overwhelmingly important role?

Deposit insurance and the Federal Reserve have made banks runs in America a historical relic of the Great Depression. The result is that bankers can lend increasingly high percentages of deposits with little fear that lines of anxious depositors form at the front door, not matter what the economic environment. There’s no competitive advantage for a bank to maintain high reserves in the era of deposit insurance.

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