With a hat tip to Sean Corrigan, via the Korea JoongAng Daily, we learn that their savings industry has been engulfed by a panic:
More than a thousand customers lined up in front of the Busan II Savings Bank located in Busan yesterday as soon as the nation’s financial regulator announced a six-month business suspension of Busan Savings Bank and its affiliate Daejeon Mutual Savings Bank.
The line formed by depositors extended about 100 meters (328 feet) from the door of Busan II Savings Bank. “You won’t be allowed to withdraw your money if you are just standing there without a queue ticket number,” a bank employee told the crowd using a microphone.
Those without a ticket then headed to the automated teller machines to withdraw their money, but the machines quickly ran out of cash.
Bank runs are only possible because banks, uniquely, operate in an environment of unconventional property rights, supported by central banks and the socialisation of risk. I explain further here: The legal nature of banking contracts.
What to do about it? Here are ten plans for reform.
“Bank runs are only possible because banks, uniquely, operate in an environment of unconventional property rights”
Not true. Banks use the same concept of property as other business organizations.
When other businesses are thought to be nearing bankruptcy do their creditors sit by and allow it? Or do they run to withdraw or take legal action against the company? Obviously they do both, just as customers of banks do.
when Banks go bankrupt central banks inject liquidity to keep them afloat. This is paid by the taxpayers without their knowledge (you obviously don’t know this either). There is a violation of the property rights of the population: they pay for the banks ineptitude and fraud with diminished purchasing power, due to the increased stock of fiduciary media.
The Korean central bank already gave assurances that the banks would be propped up.
I do not share the opinion of banks violating property rights because of fractional banking (they lend all the time-credit their clients offer via time-deposits, and a fraction of the sight-credit their clients offer via sight-deposits). I expect someone to punish me with the usual block quoting from Rothbard or Huerta, but I do not care.
Nevertheless the discrepancy between “hard” cash and fiduciary media like a credit (which is the real nature of every so-called “deposit”, a term which confuses many people who change substance for law terms) necessarily involves that people “run” to collect their money before the bank’s vaults get dry. So, if the author changes “unconventional property rights” for a simple “fractional reserve” I will agree with him.
This involves that clients cannot use money-transfer tools; this is for sure: first the troubled bank can oppose to execute any transfer order for not to go directly into bankrupt, second other banks can oppose to accept the formal money-transfer as they fear that the troubled counterparty won’t be able to fulfill the consequent compensation (this is a fiduciary media, this means that its movement must be followed by a “hard” settlement at a certain moment in time).