The Thing About Bank-Runs

 I spent a fair amount of time in 2019/2020....reading various books over the 1920s, the Wall Street collapse in Oct 1929, the bank-run, and the depression-era of the 1930s.

What I had zero knowledge  over....was the bank-runs.  It made no sense.

So after reviewing a fair amount of data....I came to three observations.

1.  Banks up to this point (say 1929) had  zero oversight, So if the bank books said $400,000 existed in the vault.....they assumed the books were correct.

Over the years (decades)....various people (from the clerks to the bank Presidents)....took liberties to 'grab'  a twenty, or perhaps even a thousand....to pay a personal debt, or engage in the land speculation business of the early 1920s.

So you might have a bank with only 80-percent of the book amount existing.  Some banks were exceptionally bad.....some were marginally bad.  

Once the 'wave' started in 1929....banks saw the bank-run business as a problem....they couldn't square things up with both private members and business members.

2.  So we come to the limit business.

Banks figured that if you  told them new rules....folks would feel happy that you denied them their  life savings (say $2,000)....if you agreed they could take out $40 a month.  

The problem is....if you were a bicycle manufacturing plant, or a brewery....you needed to meet your payroll once a month....say in the range of $5,000.

It only took one or two months....for the banks to realize that no one was bringing fresh new cash flow into the bank.  It was strictly out-going.

3.  The Fed coming to save the banks?  No.   There are various reasons given to why the Fed was marginally helpful....but in the end, they were assuming that the banks weren't in that bad of shape.  

The bank-run laying out the path to the entire 1930s?  Once you established the fact that the banks could not be trusted....you prioritized things to acquire a safe for your company/business, and cash-flow to banks dwindled.  

Why I say all of this?  Well....at some point this year....you will see a bank-run in Russia.  Trust will dissolve over a couple of weeks, and people will put themselves into a cash-only situation....refusing to deposit any cash-flow.  You being a Russian company and trying to pay workers?  Things will rapidly dissolve into a mess.

Putin's value to commerce or working-class people?  If a grocery store won't accept anything but cash...trust will dissolve pretty quick.