Monday, 18 March 2013

What happens when you close banks

The ruse of closing banks for an extended period while dealing with a crisis was used most effectively by FD Roosevelt 80 years ago, in 1933.

Thousands of banks had collapsed, there was a run on many others, confidence had evaporated.

Shortly after being sworn into office, FDR closed down US banks for 9 days from Monday 6th March 1933, keeping most closed until Wednesday the following week.

Miraculously, most did reopen, though one in every 20 was judged unfit to to operate.

The president tightened federal controls and introduced deposit protection, promising that up $2,500 of deposits per customer would be 100% guaranteed. It changed the game and deposits began to exceed withdrawals.

In his fireside chat over the radio, FDR said, “It is better to keep your money in a reopened bank than it is to keep it under the mattress.”

Will the people of Cyprus take his advice, once their banks reopen on Thursday and they find their deposits have shrunk because of the "tax" being imposed to bail out the system?

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