How to stop a bank run the Ritchie way

Was asked today how to stop run on banks. Answer – print £1,000 notes now so if run starts anyone can be paid quickly to stop queues

Hmm, paying everyone in not legal tender is really going to help.

Slightly more seriously, the problem with a bank run is that no one knows whether it is a bank run.

As soon as everyone does know it\’s a bank run then it\’s self-sustaining.

The appearance of £1,000 notes would be confirmation that it was a bank run…….

12 thoughts on “How to stop a bank run the Ritchie way”

  1. What’s the context for this? There’s no link…

    Does he realise that the problem in a bank run isn’t that the bank can’t pay out fast enough, it’s that they haven’t got enough money to pay everyone? He does understand that, doesn’t he?

  2. Somewhere I have a German postage stamp – nominal value 6,000,000 Marks – but overstamped to 25,000,000.

    Is Mr. Murphy an advisor to the government of Zimbabwe?

    Cunto di tutti cunti…

  3. Philip Scott Thomas

    There is another solution, a vastly more entertaining one: string up Robert Peston. Northern Rock depositors, at least, will certainly applaud you.

  4. Ian,

    he made the comment on twitter – hence no link. Someone pointed out that simply preventing queues wouldn’t stop the run….might even encourage more people to join in. And if people are concerned that a bank will fail, ensuring they can remove their money won’t necessarily stop them doing so.

    However, people do have the right to remove their money from banks if they want to, so in terms of meeting the demand for money, issuing the highest-denomination legal tender notes would be sensible. Inventing new denominations of notes simply to meet the needs of depositors in a bank run would not.

  5. Surely the Ritchie way to stop a run on the bank is this…

    1) People will only rush to take their money out of a bank if they have significant amount of savings in said bank.

    2) If people have significant amount of savings in the bank, then they are obviously rich, evil, capitalist bastards and deliberately hoarding their money in order to keep the poor down.

    3) Therefore, anyone who tries to take out all of their savings should be informed that the government will be taxing those savings at 100%.

    4) As such, the money is not taken out of the bank by the owner; plus the government gets more money to give to the poor.

    5) Thus there is no run on the bank and the country becomes more equal.

    6) Of course, if the government actually took the money, then the bank would not have it. But the bank would actually loan the money to the government, thus earning interest on the money.

    There—sorted!

    DK

    P.S. Nothing could possibly go wrong.

  6. The bank could announce that it will pay 5%p.a. on money in a current account, and then people will queue to pay their money in.

  7. Lets face it. The simple production of a 1000 note (as opposed to using them as a means of issuing more money, which Richie also wants to do) would do bugger all apart from the forgers having a field day trying to copy it.

  8. I recall a story from the a victorian bank run, you know more than a century before Labour brought it back. They did not use the big denomination notes that they held, they paid everybody in very small denominations. They had their employees join the queue to perform transactions to slow the queues down. By making the queues move really slowly people simple became bored and went off to do other things before the banks capital ran out. So the exact opposite of what Murphy is suggesting.

  9. Victorian? Before then, tucked away in The Wealth of Nations no less we have:
    “When a run comes upon them, they sometimes endeavour to gain time, by paying in sixpences, and they would be precluded by this regulation from this discreditable method of evading immediate payment. They would be obliged, in consequence, to keep at all times in their coffers a greater quantity of cash than at present; and though this might, no doubt, be a considerable inconveniency to them, it would, at the same time, be a considerable security to their creditors.”

  10. IanB, I don’t know if Murphy has ever read a critique of fractional reserve banking, from the likes, say, of Murray Rothbard.

    A total ignoramus.

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