14 October 2008

Bank Runs

I find the recent Australian Government guarantee of banking deposits (and the Treasury briefing of the leader of the opposition) very interesting. Briefing opposition leaders does not occur very often and I would assume was done because they wanted the opposition leader to know that the problem was serious and not to be used for political point scoring. The problem, then, must have been the real chance of a bank run developing.

Speaking to the Perth Mint's Depository and Shop staff about the reasons why people were buying gold and silver and how they were doing it leads me to believe that Australian banks were seeing the beginnings of a bank run developing. Stories of people not wanting to wait for cheques to clear and going to the bank to withdraw cash so they can get immediate delivery of metal may be reflective of wider cash withdrawals from Australian banks.

This report on ninemsn.com.au certainly would scare your average central banker: "according to Officeworks, the retailer has noticed a 'significant' increase in the sale of personal safes in recent times ... a number of people who feel nervous and consequently are pulling their money out" (see also this report from The Times)

I doubt the cash withdrawals would have posed a significant risk at this time, but I suspect that the banks were seeing abnormally high cash withdrawals and/or a trend developing and wanted the Government to stop it. It is interesting that this was necessary considering that "depositors in authorised deposit‑taking institutions (ADIs) already receive preference in any liquidation" (2 June 2008 press release by Treasurer).


Anonymous said...

hey bron,
are you going to join the gold and silver bugs, or do you still maintain that gold and silver are plentiful at Perth? If so, how come they are cancelling? Can we still order in bulk? Seriously, I am sure I can round up a few dealers to meet the minimums set up before. You may have heard but there is no silver or gold available in any quantity in Canada for investment. and I mean large investment qtys, well not huge, but 20-50000 oz silver.

Bron said...

Who said I wasn't a goldbug? Anyway, the "cancelling" is really a suspension (same thing I suppose) of order taking except for 1oz gold coins.

In my original post http://goldchat.blogspot.com/2008/08/fud-fear-uncertainty-doubt.html I suggested two scenarios and concluded with "only time will tell so we will have to wait to find out who". Time now is telling us retail demand is up and holding.

In this blog http://goldchat.blogspot.com/2008/10/fud-update.html I said that "as a whole the industry does not have the capacity to meet the sort of volumes that would from mass market/general public interest in coins and bars". The Perth Mint was not excluded from this. Shortages of retail products will continue while this demand is high.

I understand the Perth Mint does not have any problem getting bulk raw gold and silver, it is a case of orders for their retail products exceeding their production capacity. So if you want some 400oz or 1000oz bars should not be a problem. Problem is that is not what most people want (or can afford).