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Bank Run on Bank of East Asia
Yesterday, we almost had a disastrous bank run on the Bank of East Asia (BEA).
A bank run (also known as a run on the bank) occurs when a large number of customers of a bank withdraw their money at the same time. This could be because they fear the bank is in danger of collapsing.
The irony is that such an act tends to make it a self-fulfilling prophecy. An otherwise healthy bank can be destabilised by the massive withdrawal of deposits in a short period of time as banks retain only a fraction of their deposits as cash. (see fractional-reserve banking)
No bank has enough reserves on hand to cope with more than a fraction of deposits being taken out at once as they hold a lot of their assets in securities and loans. Therefore, if there is a potential of a bank run, it is imperative that officials reassure and gain back the confidence of the public.
The above light-hearted video (wait 15s) tells in a very simple and effective graphical manner what money is and how it is being created. That will help you to understand the present banking system and why bankers are so rich. 🙂