However Greece and the European Union decide to deal with Greece’s debt problem, it’s a scary scene. A bank run was happening throughout the country as citizens tried to withdraw money from accounts that might be worth a lot less later.
Banks closed for a day and restricted transfers and withdrawals, such as limiting people to taking out 60 euros from their account each day — if customers could find an ATM that had cash. Some people were buying big-ticket items such as jewelry, appliances and electronics because they thought they would hold their value better keeping their money in the bank.
The news on how banks in Greece are letting customers withdraw money is changing daily — so we won’t pretend to have the latest information on how banks are faring — but the problems of a bank run in Greece are worth a hypothetical consideration.
While no one is expecting the United States to fall in such financial trouble that a bank run would be necessary, the Greek crisis does help point out a few personal finance lessons that anyone could benefit from. Having an emergency fund, for example, can help if the economy goes sour or you lose your job. Cutting back on credit card use and spending in general can save you money and keep your finances in line.
What to do in a bank run
No matter how well your finances are set up, knowing how you’d get cash in a bank run is a possibility worth considering.
Again, I’m not suggesting a bank run is going to happen in the U.S., but looking at how Americans would deal with it could at least help with improving your personal finances today.
A bank run is typically the result of panic, not true insolvency. But as more people withdraw money in a bank run, a bank default is possible.
Much of a bank’s money — as heart-warmingly explained described in the film “It’s a Wonderful Life” — is tied up in loans and other investments, and a small amount is kept in cash.
Don’t panic; have some cash set aside
One of the first things to do in a bank run, though probably the hardest, is to not panic. After bank failures in the 1920s, Congress established the Federal Deposit Insurance Corporation (FDIC) in 1933 to insure banking deposits. Your money is insured up to $250,000 if your bank is insured by the FDIC.
In preparation for a bank run, it can be a good idea to have some cash set aside. Having cash and a checkbook to write checks that would clear after the banks reopen helped get Ireland get through a bank run from 1966 to 1977.
Don’t buy consumer goods in masse
Some Greeks bought washing machines, Macbooks, jewelry and other expensive items during the bank crisis as a hedge against losing most of their money in a bank collapse. They wanted something they thought would hold its value for a long time, or at least to spend their money now while it was worth something.
Some people paid property taxes ahead of time, thinking they might as well do it now while they have the cash. One man spent $2,000 euros on new clothes.
No one knows exactly what the economy will do during a bank run, but consumer goods don’t usually hold their value in the U.S. for a long time. And they rarely are worth more than what they originally sold for, unless you’re a collector and know what you’re buying.
An electronics reseller told the website Makeuseof that Apple products are generally worth about twice as much as other devices during the same period in their lifecycle. That’s great if you’re willing to sell your old Macbook Pro. But do you really want to buy a few Apple computers ahead of a bank run on the hope that you’ll resell them for cash and at least break even?
Once the banking crisis in Greece is over, or at least has calmed down, I’d like to see what those hoarders do with the extra dryers, dishwashers and iPhones they have.