The Big Game – Russian Bank Run

| October 16, 2008

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Russia has been under enormous financial stress during the last several months. Russia is a young economy that is still trying to figure out how to work without the socialism and central planning. As credit contracts here, it evaporates in places like Russia, and there is no “Fed mother hen” to backstop the banks.

On Wednesday, Russia suffered a significant bank run against Globex. Customers were not allowed to make withdraws from their accounts. The danger of this is that the panic could spread to other banks in Russia, and banks in other parts of the world. In case no one has told you yet, the entire world economy is a very fragile mess right now, and minor threats that could be easily be dismissed now have the possibility to set of a regional or global wave of panic.

From the UK’s Financial Times – Run on Russian bank heightens fears:

Globex on Wednesday banned depositors from withdrawing their money as confidence in the Russian banking system began to show signs of evaporating.
Globex, a mid-sized retail bank with assets of $4bn (€2.95bn, L2.32bn), is the first Russian bank to experience a run on deposits during the crisis. It lost 13 per cent of its deposits last month, according to Maxim Raskosnov, an analyst at Renaissance capital, and a further 15 per cent this month according to Emilya Alieva, Globex’s vice-president.

At least a dozen other Russian banks have reported a sharp rise in withdrawals and account closures.

An economist with a leading western bank in Moscow said Globex was probably the first in what could be a number of bank panics, if the government did not take concerted action soon. “I think there are a large number of small and medium sized banks that are in the same situation,” she said.

Globex confirmed that the ban on withdrawals had been in effect since Tuesday and blamed “demand from depositors, many of whom explained their wish to transfer their money to VTB or Sberbank”. So far in the past two months three Russian banks have been forced into mergers as a result of the credit crisis, and analysts expect more consolidation. Russia’s central bank made no public mention of Globex crisis, sparking criticism from analysts.

It is important to keep a sharp eye on these things, as in this climate they could easily trigger unexpected problems in the broader economy. More soon on how the credit crunch is bringing the world economy to a grinding halt soon.

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About the Author ()

Bruce Henderson is a former Marine who focuses custom data mining and visualization technologies on the economy and other disasters.

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