Lessons from ‘El Corralito’ Part 2

24.06.2016 • The Economy

From The Gowdie Letter (Australia)-

The most frequent question I’ve received is: ‘Can a deposit freeze happen here in Australia?’

The short answer is yes. Anything is possible when it comes to financial markets.

A loss of confidence in our financial institutions, and the government’s ability to manage the situation, could see a bank run in Australia. If this was serious and prolonged enough, the RBA — in concert with the government — could impose deposit access restrictions.

In the current climate, people are still behaving rationally, and banks are still considered pillars of society. Most people investing in the share market want to own bank stocks. So the prospect of a bank freeze appears remote.

But as we saw in 2008, perceptions can change very quickly. The collapse of Lehman Brothers on 15 September 2008 flicked a switch, from ‘passive’ to ‘panicked’. On 12 October 2008, less than a month later, the government deposit guarantee was announced in Australia.

Mood swings can happen quickly.

By Selva Freigedo

-If you want to subscribe to read more, visit portphillippublishing.com.au (paywall) (English)-

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