We hear the cries each day, “the movement is growing”, “this is unstoppable” etc… Some pundits and participants within the OWS movement have even called for the average American to take their money out of big banks and move them to either a credit union or community bank. Could OWS actually cause a run on our banks? For the fun of it, let’s see how feasible this actually would be.
Assumption 1: For the sake of example, let’s assume that every single OWS protester or American interested in “sticking it to the big banks” kept their deposits at Bank of America and had ~$5,000 in the bank. After all, these would be the “slighted” customers who are now paying fees for using a debit card. Let’s assume, to be generous, that one million people would participate in this movement.
Assumption 2: Tomorrow morning, each of these one million people transfer, on average, $5,000 each to a different bank.
Implication: Absolutely nothing. Mechanically, $5billion would be taken out of B of A’s Fed account and transferred to various community bank/credit union Fed accounts. Bank of America as of 6/30/2011 had ~$120bil sitting at the Fed. This improbable scenario would barely make a dent in their cash position. You can quickly do the maths, and see how flush with liquidity a bank like $BAC currently is.
Assumption 3: The OWS protesters are magically able to convince one million $BAC customers to withdraw $120,000 each tomorrow.
Implication: This pie in the sky scenario would leave $BAC with no cash at the Fed. What would they do? If you read my earlier post here, you would see that $BAC also has $50bil of USTs and $230bil of Agency MBS.
Conclusion: Ok, I assume you get the point. There is very little risk of a “run” on TBTF banks given their current liquidity positions. Here’s the most ironic part: banks would actually be more than happy to have certain unprofitable deposits leave the bank. With each incremental dollar sitting at the Fed or going into USTs, there is little/no value for new deposits.
Furthermore, by de-leveraging through deposits leaving, bank capital ratios would actually IMPROVE! The denominator in certain bank capital ratios is “average assets”, so a reduction of deposits would actually improve capital ratios.