The image of banks locking their doors to keep customers from making withdrawals during a bank run is what immediately came to mind when we heard that Citigroup was telling customers it has the right to prevent any withdrawals from checking accounts
for seven days.
Read More
Wikipedia’s definition of a Bank Run
A bank run (also known as a run on the bank) occurs when a large number of bank customers withdraw their deposits because they believe the bank is, or might become, insolvent. As a bank run progresses, it generates its own momentum, in a kind of self-fulfilling prophecy (or positive feedback): as more people withdraw their deposits, the likelihood of default increases, and this encourages further withdrawals. This can destabilize the bank to the point where it faces bankruptcy.
March 5, 1933
Roosevelt declares bank holiday
When Franklin Roosevelt started his first term in the White House in 1933, he inherited a nation in the depths of the Depression. A record 13 million Americans were unemployed and businesses were drowning in red ink. Perhaps even more pressing was the head-spinning string of bank failures which had triggered a frantic run on the nationÝs savings vaults. The wave of withdrawals by panic-stricken depositors further dried up banks’ already-depleted supply of liquid assets and pushed the nation’s banking system to the brink of disaster. On March 5–the day after being sworn into office–Roosevelt stepped into the breach and declared a “bank holiday,” which, for four days forced the closure of the nation’s banks and halted all financial transactions. The “holiday” not only helped stem the frantic run on banks, but gave Roosevelt time to push the Emergency Banking Act through the legislative chain. Passed by Congress on March 9, the act handed the president a far-reaching grip over bank dealings and “foreign transactions.” The legislation also paved the path for solvent banks to resume business as early as March 10. Three short days later nearly 1,000 banks were up and running again.
