There are active signs that bank runs, particularly in the periphery, are intensifying. Bank depositors in the so-called “PIIGS” now fear they will wind up with the old currencies which will be worth much less than the euro. This is especially so in Greece, where markets are pricing in a 75% likelihood that Greece will be forced to exit the euro zone. These deposit funds go into German and other core European banks who then recycle the funds through the ECB and the national central banks back into the banks of the PIIGS that are experiencing the deposit runs.
Apparently this deposit run and its reflux back into the imperiled banks on the periphery accelerated in the early months of this year before the French and Greek elections. It apparently has accelerated further since.
In effect, the System of European Central Banks is involved in an ever growing and massive bailout exercise which they are not publicly talking about. It seems to me it is this bailout financing circuit in response to bank deposit runs that must be addressed. Draghi, by being silent rather than addressing it strongly, is only encouraging a greater deposit run. It might be that he is, yet again, underestimating the scale of the problem, or simply reluctant to confront the more hawkish members of the ECB, who still refuse to recognize the scale of the enveloping crisis.Read it at Pinetree Capital — MacroBits
Bank runs intensifying in the Euro zone
by Marshall Auerback
Marshal dismisses talk of the ECB becoming insolvent and recommends their stepping up to the plate quickly to prevent the otherwise inevitable denouement.