Thoughts, essays, and writings on Liberty. Written by the heirs of Patrick Henry.

“This country, with its institutions, belongs to the people who inhabit it. Whenever they shall grow weary of the existing Government, they can exercise their constitutional right of amending it or their revolutionary right to dismember or overthrow it.”     Abraham Lincoln,    First Inaugural Address, 4 March, 1861

August 18, 2007

A Good Old-Fashioned Bank Run

by Doug Mataconis

It seems that Countrywide Bank is getting blowback from the financial problems of it’s parent company:

LOS ANGELES — Anxious customers jammed the phone lines and Web site of Countrywide Bank and crowded its branch offices to pull out their savings because of concerns about the financial problems of the mortgage lender that owns the bank.

Countrywide Financial Corp., the biggest home-loan company in the United States, sought Thursday to assure depositors and the financial industry that both it and its bank were fiscally stable. And federal regulators said they weren’t alarmed by the volume of withdrawals from the bank.

(…)

At Countrywide Bank offices, in a scene rare since the U.S. savings-and-loan crisis ended in the early ’90s, so many people showed up to take out some or all of their money that in some cases they had to leave their names.

In west Los Angeles, a Countrywide supervisor brought in from another office served coffee to more than 25 people waiting calmly for their turn with the one clerk who could help them.

Bill Ashmore drove his Porsche Cayenne to Countrywide’s Laguna Niguel office and waited half an hour to cash out $500,000, which he then wired to an account at Bank of America.

“It’s because of the fear of the bankruptcy,” said Ashmore, president of Irvine’s Impac Mortgage Holdings, which escaped bankruptcy itself recently by shutting down virtually all its lending and laying off hundreds of employees.

“It’s got my wife totally freaked out,” he said. “I just don’t want to deal with it. I don’t care about losing 90 days’ interest, I don’t care if it’s FDIC-insured — I just want it out.”

(…)

In a statement, the bank said: “It is very important to remember that Countrywide Bank is well capitalized, with FDIC-insured deposits, and is one of the largest banks in the United States, with assets over $107 billion.” The bank added that it had significant access to outside capital and was still highly rated by debt-rating firms.

In the end, the bank is right. Countrywide Bank and Countrywide Financial are two separate entities and the bank is fundamentally a different entity from  the mortgage lender. But banking has always been part-business and part-psychology, if people don’t have confidence in the bank that’s holding their money, no amount of FDIC insurance is going to stop them from taking it out. And, if enough people do that, then Countrywide Bank could find itself in the same position as it’s parent.


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5 Comments

  1. A Google search of “bank run” plus “Countrywide” in blogs for the past day returns over 50 hits. The same search run in Google News returns only two hits actually referring to the Friday run on Counrywide–and one of those claims it was “not quite a bank run.”

    Don’t worry, though: there’s no propaganda machine in place that makes Orwell’s 1984 look like the Boy Scouts.

    Comment by Ned Didry — August 18, 2007 @ 9:54 am
  2. Doug,

    I had a slightly different reaction when reading this. Did you notice how people are worried about getting their money out even though it is federally insured? What does that say about people’s belief in the government and its promises? I might be reading more into it than I should, but I kind of like the idea that people have it in the back of their minds that the FDIC is incompetent.

    Comment by trumpetbob15 — August 18, 2007 @ 5:08 pm
  3. True the F.D.I.C. say’s it will insure your saving’s,up to a given point but what they don’t say is if thier is a run on the banking system it may take you a loong time to recieve it…

    Comment by robert ferrin — August 28, 2007 @ 9:10 am
  4. WELL, IT WILL TAKE TIME TO PRINT THE MONEY FOR ALL THE CD’S, SO YOU CAN’T BLAME THE F.D.I.C

    Comment by STEPHEN A KAPOGIANNIS — August 28, 2007 @ 10:10 am
  5. the FDIC only insures up to a maximum of $100,000 for a single account.

    Comment by alyce — August 30, 2007 @ 10:08 am

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