http://www.TheForexNittyGritty.com - Run on French Banks - Could there be a run on French banks if credit agencies downgrade their debt ratings? A bank run is when many customers of a bank simultaneously wish to withdraw funds. They do this, commonly, because they believe that the bank might go into bankruptcy and that they, the customer, will lose money. If a sufficiently large number of customers decide to withdraw their money for fear of the bank becoming insolvent it can become a self-fulfilling prophecy. A possible run on French banks is of concern because the large deposits that many nations, including Germany and the US have in these banks. It was the run on many US banks in the early 1930’s that helps create the Great Depression. The prospect of a Greek debt default is especially worrisome for French banks as they hold substantial amounts of Greek debt. As with other bank runs it is the prospect of losing money that drives depositors to withdraw funds.

2. COULD THERE BE A RUN ON FRENCH
BANKS IF CREDIT AGENCIES
DOWNGRADE THEIR DEBT RATINGS?
A BANK RUN IS WHEN MANY
CUSTOMERS OF A BANK
SIMULTANEOUSLY WISH TO
WITHDRAW FUNDS.
W W W . T H E F O R E X N I T T Y G R I T T Y. C O M

3. THEY DO THIS, COMMONLY, BECAUSE
THEY BELIEVE THAT THE BANK MIGHT
GO INTO BANKRUPTCY AND THAT
THEY, THE CUSTOMER, WILL LOSE
MONEY.
W W W . T H E F O R E X N I T T Y G R I T T Y. C O M

4. IF A SUFFICIENTLY LARGE NUMBER
OF CUSTOMERS DECIDE TO
WITHDRAW THEIR MONEY FOR FEAR
OF THE BANK BECOMING INSOLVENT
IT CAN BECOME A SELF-FULFILLING
PROPHECY.
W W W . T H E F O R E X N I T T Y G R I T T Y. C O M

5. A POSSIBLE RUN ON FRENCH BANKS IS OF
CONCERN BECAUSE THE LARGE DEPOSITS
THAT MANY NATIONS, INCLUDING
GERMANY AND THE US HAVE IN THESE
BANKS. IT WAS THE RUN ON MANY US
BANKS IN THE EARLY 1930’S THAT HELPED
CREATE THE GREAT DEPRESSION.
W W W . T H E F O R E X N I T T Y G R I T T Y. C O M

6. THE PROSPECT OF A GREEK DEBT DEFAULT
IS ESPECIALLY WORRISOME FOR FRENCH
BANKS AS THEY HOLD SUBSTANTIAL
AMOUNTS OF GREEK DEBT. AS WITH
OTHER BANK RUNS IT IS THE PROSPECT OF
LOSING MONEY THAT DRIVES DEPOSITORS
TO WITHDRAW FUNDS.
W W W . T H E F O R E X N I T T Y G R I T T Y. C O M

7. THERE ARE A NUMBER OF WAYS THAT
BANKS ATTEMPT TO PREVENT A RUN. AN
OLD AND OFTEN SUCCESSFUL PROCEDURE
IS TO CLOSE THE BANK TEMPORARILY.
SUCH A “BANK HOLIDAY” STEMS THE FLOW
OF CAPITAL OUT OF THE BANK WHILE
OTHER MEASURES ARE INSTITUTED TO
PROTECT THE BANK.
W W W . T H E F O R E X N I T T Y G R I T T Y. C O M

8. DEPOSIT INSURANCE HELPS PROTECT
DEPOSITORS BUT THE AMOUNTS OF
DEPOSIT INSURANCE ARE USEFUL FOR
INDIVIDUALS AND NOT FOR NATIONS.
W W W . T H E F O R E X N I T T Y G R I T T Y. C O M

9. THE INTERCONNECTEDNESS OF BANKS
AND OTHER FINANCIAL INSTITUTIONS IS
SUCH THAT DAMAGE FROM A RUN ON
FRENCH BANKS AND SUBSEQUENT
COLLAPSE COULD SPREAD TO NORTH
AMERICA AND ASIA.
W W W . T H E F O R E X N I T T Y G R I T T Y. C O M

10. IT IS A MEASURE OF HOW SERIOUSLY
INVESTORS TAKE THIS SITUATION THAT
WHEN NEWS OF A POSSIBLE RESOLUTION
TO THE EUROPEAN DEBT DILEMMA
EMERGED THIS LAST WEEK STOCKS
SOARED IN THE US AND WORLDWIDE.
W W W . T H E F O R E X N I T T Y G R I T T Y. C O M

11. VARYING FOREIGN CURRENCY RATES HAVE
BEEN A HALLMARK OF THIS SITUATION.
W W W . T H E F O R E X N I T T Y G R I T T Y. C O M

12. NATIONS THROUGHOUT THE WORLD HAVE
BEEN TRYING TO GET A HAND ON THE
DEGREE TO WHICH THEIR BANKS ARE
EXPOSED TO THIS SITUATION.
W W W . T H E F O R E X N I T T Y G R I T T Y. C O M

13. THE US FEDERAL RESERVE ANNOUNCED
THAT IT IS ANALYZING THE BOOKS OF THE
SIX LARGEST US FINANCIAL INSTITUTIONS
FOR EUROPEAN, ESPECIALLY FRENCH,
DEBT.
W W W . T H E F O R E X N I T T Y G R I T T Y. C O M

14. IT IS PERTINENT THAT BANK OF AMERICA,
CITIGROUP, GOLDMAN SACHS, MORGAN
STANLEY, JPMORGAN CHASE, AND WELLS
FARGO HAVE DEPOSITS EQUAL TO TWO
THIRDS OF THE US GDP WHICH COMES TO
A LITTLE UNDER $10 TRILLION USD.
W W W . T H E F O R E X N I T T Y G R I T T Y. C O M

15. THE CONCERN OF THE FED IS THE
CURRENCY SWAPS IN WHICH THESE
FOLKS HAVE ENGAGED. IN A CURRENCY
SWAP TWO PARTIES EXCHANGE
CURRENCIES OR INTEREST PAYMENTS ON
CURRENCIES ON A FIXED FUTURE DATE.
W W W . T H E F O R E X N I T T Y G R I T T Y. C O M

16. THESE ARE FOREX TRANSACTIONS.
SPECULATORS USE THESE IN SEARCH OF
PROFITS. CENTRAL BANKS MAY USE THESE
TO KEEP CURRENCIES STABLE.
W W W . T H E F O R E X N I T T Y G R I T T Y. C O M

17. THE CONCERN OF THE FED IS THAT US
BANKS MAY HAVE EXCESSIVE EXPOSURE
TO THE EURO AND THE RISK OF A EURO
COLLAPSE IF THE EUROPEAN DEBT
DILEMMA BECOMES UNSOLVABLE.
W W W . T H E F O R E X N I T T Y G R I T T Y. C O M

18. THIS COMBINATION OF FOREX AND
SOVEREIGN DEBT HAS PLAGUED THE
MARKETS FOR OVER A YEAR AND MAY,
INDEED, PRODUCE A RUN ON FRENCH
BANKS.
W W W . T H E F O R E X N I T T Y G R I T T Y. C O M

19. AS CREDIT AGENCIES SUCH AS MOODY’S
APPRAISE THE SITUATION FOREX TRADERS
ARE WARY OF MOVEMENT OF THE EURO
AND THE US FEDERAL RESERVE IS
PUMPING DOLLARS INTO EUROPE IN
ORDER TO FORESTALL A GLOBAL
FINANCIAL DISASTER.
W W W . T H E F O R E X N I T T Y G R I T T Y. C O M

20. FOR MORE INSIGHTS AND USEFUL
INFORMATION REGARDING THE FOREX
MARKETS AND FOREIGN CURRENCY
TRADING, VISIT
WWW.THEFOREXNITTYGRITTY.COM.