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Sorry, I meant is there a law preventing limiting withdrawls. If not, I don't see why banks don't just do that, when subject to a run, so I guess there must be
by tome 4y ago
Sorry, I meant is there a law preventing limiting withdrawls. If not, I don't see why banks don't just do that, when subject to a run, so I guess there must be. In other words, the government says that deposits must be always withdrawlable immediately on request, which seems like a surefire recipe for runs.
- akiselev 4y agoIANAL but my layman’s understanding is no, there is no law preventing them from halting withdrawals and a temporary suspension can on rare occasions stop a bank run. Problem is, clients can sue to get their withdrawals and the judge in charge of the case can force the business into involuntary bankruptcy proceedings (without the protection of voluntary bankruptcy) if they think the bank can’t meet the withdrawals in full, to get a valuation of its assets so that the plaintiffs can be made whole. This won’t happen over the weekend because courts aren’t in session but can happen on a week or two timescale, in which case the business is basically frozen for months while everyone fights over a half dead carcass. It’s a relatively catastrophic outcome for everyone involved.
- salawat 4y agoNormally contract law. You select an account offering with different procedures for liquidation. A demand deposit or checking accound has little or no notice. A money market may take a day or so for underlying assets to be exited. CoD's and such typically don't even have the option for withdrawal. You just have to wait for maturation. Point is, you know this when you open the account. They should take great pains to ensure you understand the instrument... And to manage things appropriately, which apparently, SVB did not.