Banks in area do not feel low reserves would create much of a problem. As one officer put it, if the bank ran out of money they would have the fed ship some more money. Customers might be inconvenienced for a few days. Why is a bank run highly undesirable? Also, what is recommended for reserves at the end of the year. Is 10% prudent? By the way, some bank officers are reluctant to discuss the issue of reserves.

-- stephen lauger (bel412 @aol.com), October 01, 1999

Answers

(1) Low reserves are not a problem if very few people take their money out of the bank...

(2) If a bank runs out of money, yes, they would ask for a shipment of cash from the FED. But this would also have the effect of heightening the hysteria, leading to full-fledged panic. Many, if not most of their depositors would be lined up for withdrawals. And almost no one would be depositing...

(3) Customers could be more than slightly inconvenienced...if they can't buy food, fuel, etc.

(4) A bank run represents a failure in trust of the bank (and the banking system). In extremis, it represents the start of failure of the entire monetary system. If you are a banker, this is the last thing that you want to see!

(5) As to a viable reserve percentage for the beginning of the year, I wouldn't even guess! Besides, no bank could afford it!

(6) Bankers may not want to talk about their reserves status because they really don't want people to consider how fragile the system is...because they might just set off a panic that they want to avoid.

-- Mad Monk (madmonk@hawaiian.net), October 01, 1999.

What he doesn't get is that customers will not tolerate being 'inconvenienced for a few days.' If the banks tell you and tell you there will be no problems... and then tell you no, there is a problem, you must wait an indefinite period of time, a few days... guaranteed, soon as the new cash is in, homey takes it ALL out. No second chances. Word spreads. It's over, in the twinkling of an eye.

-- Scarecrow (somewhere@over.rainbow), October 01, 1999.

Little banks like yours and mine are NOT, I repeat NOT the problem. And while J. Q. Public may think he has the power to bring down banks if he and ALL his buddies withdraw everything (and I happen to agree that they could) the FAR greater risk lies in something called Herstatt risk. Quite simply Herstatt is the effect of multiple risk differentials on the institutional banking system. It is the most dangerous aspect of Y2K as regards banking. One or two or even three or even twenty small banks can go under with out much ado. Should one of these behemoths fail (ex. Citbanks daily FOREX exposure = 128 billion dollars) we'll be wondering just how to rebuild the global economy. It won't be pretty. So don't fret about your little deposits because if the institutional money goes down, your cash won't be worth spit anyway. As always, have a nice day.

-- Gordon (g_gecko_69@hotmail.com), October 01, 1999.

Mr. Gecko, you silver tongued devil, you do have a way of making a point. Gridlock of transactions, network gridlock--name it-- its ugly

-- Nancy (wellsnl@hotmail.com), October 01, 1999.

Gordon:

>>"So don't fret about your little deposits because if the institutional money goes down, your cash won't be worth spit anyway"

What do you see as the status of cash and other forms of money "if the institutional money goes down"? What do you recommend? Some actions or protections must be better than others, yes?

Your views from the inside are valued by me and many others, Gordon.

-- Mr Gresham (wh@t.century.is.it?), October 02, 1999.

Gordon: I disagree with your statement that if the banks go down, cash won't be worth anything. If the banks go down, that spells the immediate demise of digital money but people still will have wants and needs and what will they have to trade with but cash, except for the few who have gold and silver? If the banks go down, cash will be extremely valuable.

-- cody (cody@y2ksurvive.com), October 02, 1999.