After nervous customers panicked and
drained their accounts, ultimately causing the collapse of Spanish bank,
Banco Popular, equally jittery European Union officials are debating
the merits of freezing access — preventing anyone from withdrawing any
money — at the first sign of a bank run.
Proponents claim measures to halt a
rush of withdrawals would prevent the downfall of floundering financial
institutions at their most vulnerable point — in hopes of staving off a
catastrophe at least as harrowing as that of 2008 — while detractors
admonish the move might have precisely the opposite effect, with
investors rushing to yank funds at the slightest indication of trouble.
“The desire is to prevent a bank run, so that when a bank is in a critical situation it is not pushed over the edge,” ‘a person familiar with German government’s thinking’ told Reuters.
“Giving supervisors the power to
temporarily block bank accounts at ailing lenders is ‘a feasible
option,’ a paper prepared by the Estonian presidency of the EU said,
acknowledging that member states were divided on the issue,” Reuters reports.
“EU countries which already allow a
moratorium on bank payouts in insolvency procedures at national level,
like Germany, support the measure, officials said.” More
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