Thursday, December 11, 2008

Bank Runs in the Philippines

Herein lies the problem with fractional reserve banking...they only keep a fraction on reserve to cover deposits. If more than 10% of depositors attempt the pull out their money, there will not be any left for them. It is for this reason the FDIC is a major confidence game. The FDIC has less than 1% on reserves against total deposits. My advice? Only keep in the banks what you can afford to lose....

Heavy withdrawals hit Gaisano bank as more banks close

CEBU CITY — Alarmed by the bank holidays declared by rural banks under the Legacy Group, depositors have flocked to a Gaisano-owned bank since Wednesday in a bid to withdraw their money.

Three of the seven branches of the Rural Bank of Subangdaku (RBS) in Metro Cebu and one in Dumaguete City in Negros Oriental suffered from heavy withdrawals since Wednesday, said spokesperson and administrative manager Maritess Obenza.

Despite this, she assured that they had no plan to declare a bank holiday in any of the affected branches.

"The board (of directors) is still meeting on how to address the withdrawals although we have contained these because we were able to explain to our depositors and convince them that there’s no need to panic," Ms. Obenza said.

RBS depositors panicked after rural banks under the Legacy Group declared bank holidays. The affected RBS branches are located near the Legacy banks.

The Bangko Sentral ng Pilipinas Cebu regional office has confirmed that the Pilipino Rural Bank, Inc. and Philippine Countryside Rural Bank, Inc. have declared bank holidays. The Bank of East Asia, formerly Rural Bank of Bisayas Minglanilla, also declared a bank holiday on Wednesday.

All three are under the Legacy Group and covered by a recent Supreme Court ruling that upheld the central bank’s move to close them for capital deficiency.

A fourth bank, the Rural Bank of Bais, also declared a bank holiday on Wednesday. In a notice posted on its doors, the bank said it was waiting for the release of its emergency loan by the central bank.

A source at the Bangko Sentral Cebu office, who asked not to be named, said they were still evaluating the situation at the Rural Bank of Bais and Bank of East Asia as of yesterday.

They have been informed of the heavy withdrawals at the Rural Bank of Subangdaku, but they were confident that the bank was capable of servicing these withdrawals. — Marites S. Villamor


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Story Location: http://www.bworldonline.com/BW121208/content.php?id=023
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