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View Diary: San Jose: Millions Withdrawn from Bank of America and Wells Fargo! (288 comments)

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  •  They won't feel it. Yet. (6+ / 0-)

    To qualify for FDIC insurance, banks must keep a fraction of their assets liquid.  A "well-capitalized" bank has at least 10% of its assets in liquid form.  If this "cash reserve ratio" falls below 2%, then the bank is insolvent and gets closed by the FDIC.

    So, if you withdraw $1,000,000 from an account, the bank's maximum loaning capability is reduced by $10,000,000.  Banks like to keep as little in reserve as possible because the more money they keep in reserve, the fewer loans they can sell;  if a bank is well-run its reserve ratio is probably not much above the magic 10%.  

    You're right that Bank of America won't feel a loss of $4,150,000;  even the $41,500,000 loans on sales will be get brushed off.

    The damage is not in the math;  it's in the perception.  A long line of people outside heavily-travelled branches of a bank will attract attention.  If BoA decides to forbid people from withdrawing en masse, that could be actionable and there is a glut of lawyers on the market.  A run on the Bank of America would be quite damaging, though such is unlikely thanks to the FDIC.  

    Further damage is in the fact that BoA's competition can now safely make about $3,700,000 in other loans.  This gets small businesses and ordinary depositors out of the habit of dealing with BoA.  

    "Politics should be the part-time profession of every citizen who would protect the rights and privileges of free people and who would preserve what is good and fruitful in our national heritage." -- Lucille Ball

    by Yamaneko2 on Thu Oct 13, 2011 at 03:55:42 PM PDT

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    •  Very good analysis (1+ / 0-)
      Recommended by:
      wonmug

      And let's not forget the PR strike to the heart of showing this news conference on the TV news last night.

      That puts the issue right in front of a lot of people who had never heard of this issue before.

      "I mean, it -- I mean -- and I tell somebody, I said, just because you have a group of scientists that have stood up and said here is the fact, Galileo got outvoted for a spell." -- Rick Perry, 9/7/11

      by Senor Unoball on Thu Oct 13, 2011 at 03:58:59 PM PDT

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    •  Except that FDIC insurance (2+ / 0-)
      Recommended by:
      Senor Unoball, alizard

      only prevents bank runs because people feel their money isn't safe.  It does nothing to prevent a bank run for other reasons, such as trying to avoid new fees.

      There is no saving throw against stupid.

      by Throw The Bums Out on Thu Oct 13, 2011 at 07:06:12 PM PDT

      [ Parent ]

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