Friday, June 1, 2012

The Economist - Preventing a European Bank Run

IN CONTINENTAL capitals and bank boardrooms there is a common fear. It is that the slow jog of deposits leaving banks in Greece and, more recently, Spain, may turn into a full-blown run that quickly spreads from bank to bank, and then from country to country. There have already been some warning signs, such as a sudden acceleration of deposit outflows from Greek banks in May.

A fierce debate is now taking place as to the best way to avert a run that, if it started, might be difficult to contain and could lead to massive capital flight from the euro zone’s peripheral countries, which have €1.8 trillion ($2.2 trillion) in household deposits (see chart). Increasing numbers of people think the answer is greater financial integration. On May 30th the European Commission said there ought to be “full economic and monetary union, including a banking union; integrated financial supervision and a single deposit guarantee scheme”.

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