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How can a bank go broke? What would be some examples of fundamental causes?
What does it take to send a bank broke?
- Thread starter It's Snake Pliskin
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I nominate this thread title for "Thread Title of the Year"
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Great question.
In theory couldn't any bank be sent bankrupt by the simple case of all deposit holders asking to withdraw their money at once (i.e. a run)?
Then of course other way they can go broke is if everyone that owe's them money stops paying them the interest they owe.
Does anyone know if the four major Australian banks source capital from anywhere else aside from deposit accounts?
For their direct lending my understanding is that with Australian banks there is a reasonable level of APRA regulation around this, though it still didn't stop wreckless lending during the 80's to the likes of Bond and Skase. The more worrying part is if they are providing capital to third party institutions that are then lending it in a less regulated manner.
In theory couldn't any bank be sent bankrupt by the simple case of all deposit holders asking to withdraw their money at once (i.e. a run)?
Then of course other way they can go broke is if everyone that owe's them money stops paying them the interest they owe.
Does anyone know if the four major Australian banks source capital from anywhere else aside from deposit accounts?
For their direct lending my understanding is that with Australian banks there is a reasonable level of APRA regulation around this, though it still didn't stop wreckless lending during the 80's to the likes of Bond and Skase. The more worrying part is if they are providing capital to third party institutions that are then lending it in a less regulated manner.
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Bond/debenture issues, trading activities (forex, indecies, etc) & everyone's favourite CDOs (yes, banks including Australian banks issue CDOs. It is not only a sub-prime mortgage product).
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Thanks - now that you mention the other sources it seems obvious and I also remember NABs forex trading debarcle a few years ago. For some reason I was still wandering around with a simplistic view.
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well, i don't exactly know if it can happen in australia.
but in my country, i have seen many banks shut down their services.
in 1998, many banks in my country were collapsed. some are forced to merge with other banks.
at that time, ppl don't believe in anything (government, banks) and everything went chaotic. ppl rushed to all banks to take their money.
this is due to political problem in government.
but like others said, lose in currency trading, can't receive interest payment from borrowers, can send a bank to have big financial problem.
but in my country, i have seen many banks shut down their services.
in 1998, many banks in my country were collapsed. some are forced to merge with other banks.
at that time, ppl don't believe in anything (government, banks) and everything went chaotic. ppl rushed to all banks to take their money.
this is due to political problem in government.
but like others said, lose in currency trading, can't receive interest payment from borrowers, can send a bank to have big financial problem.
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