It’s a nightmare scenario: the banks start failing and people rush to withdraw their deposits and savings. So how much currency is available to cover such withdrawals?
It turns out that for every dollar that you have in the bank (in the USA) there is actually whopping $0.00061 available to cover each dollar in a withdrawal request!
In other words, banks could only pay out 6 cents for every $100 dollars of deposits that people have at the bank. It’s not a problem when a few people a day want to clear out their accounts. But when every customer is there, demanding the bank gives them their money back…it’s a scenario the banks couldn’t handle.
In practice what would likely happen is that capital controls would be put in force. Similar measures were imposed in Greece during its financial crisis and depositors could withdraw no more than €60 (about $68 per day) each per day.
The other likelihood is that the banks would shut their doors, possibly permanently, taking everyone’s savings with them.
In the EU, bank depositors are guaranteed protection for up to €100,000 in accounts with any one bank. So the prudent thing to do over there if you have more than 100k is to open savings accounts at different banks (not at different branches).
But even with that protection in place, people still wouldn’t be able to get access to all their savings if a bank run happened. They’d (hopefully) eventually get their money, but after how long?
We live in an economic system that is made complicated by design. Basically, it’s set up to be so complex that most people don’t even try to understand it.
Owning gold and silver puts control of your money in your own hands. And if the nightmare scenario should ever happen, you’ll still have a monetary resource to call on when times get tough.
Right now, the easiest and cheapest way to buy gold is with BitGold (I have a review of it here if you’re not familiar with it). They store your gold in an allocated vault. If you prefer the idea of having gold in your own possession, then buying from SD Bullion is the next cheapest and easiest option.
This video was presented by Mike Maloney. If you’re looking for a good book about how to invest in gold and silver I can recommend his book.
4 thoughts on “Ever Wondered How Much Money Is Available To Cover A Run on The Banks?”
I never thought of buy gold. This is really interesting and kind of scary. I can’t believe that banks would only pay you 6 cents for every $100. That is crazy! Thank you for bringing this to our attention! I will be sure to thoroughly go over Mike’s book and look into BitGold and SD Bullion. Much appreciated.
Having a run on the banks is one of the reasons i always give when trying to convince someone to invest in precious metals. Not paper but the real metal in their hands. If you don’t hold it, you don’t own it.
I’m definitely not in favor of buying paper gold. While there’s always some risk in buying real gold but having it stored in an allocated, segregated vault, it does give you more flexibility when it comes time to buying and, particularly, selling as you can react quickly to price changes. Physically owning precious metals though is definitely the safest bet.