Russia’s Central Bank Aims to Prevent Bank Runs

by Martin Armstrong

(Image of Americans lining up to withdraw cash during the Great Depression)

The Central Bank of the Russian Federation is speaking carefully and confidentally to prevent an official bank run. “In recent days, the demand for cash has grown. To meet the increased demand, the Bank of Russia increased the issuance of cash to banks, and replenishment of ATMs will continue this weekend,” the bank announced the day after the war began. Historically, people have withdrawn their cash during times of war and political uncertainty. Human nature remains the same no matter what time period or country we view. We hoard wealth we when are fearful of the future, and when everyone rushes to the banks to withdraw their money they soon realize that there is not some safe inside the bank neatly stacking their money. The liquidity simply does not exist.

Russia’s central bank is also providing financial support to all sanctioned banks. “Banks will perform all ruble operations and provide relevant services to all customers as normal. All customer funds in foreign currency will be preserved and may be withdrawn in the currency of account. The Bank of Russia is prepared to provide banks with financial support in rubles and foreign currency,” the press release stated. “Banks remain highly resilient and have great potential to develop lending to the Russian economy. The balance sheet of each bank is predominantly (over 80%) denominated in rubles. Foreign currency loans have been granted mainly to solvent Russian companies that will continue to service them.” The Kremlin likely factored sanctions into their war plan, but it remains to be seen if they underestimated the impact those sanctions would have on their overall economy.