What An American Bank Run Would Look Like

Tyler Durden's picture

Technically the title of this post is wrong: the truth is that nobody could possibly know or predict what a bank run would looks like in details suffice to say that it would have terminal and devastating results on the global economy. One needs only remember what happened when the Reserve Fund broke the buck and the $3 billion money market industry was at risk of unwinding (for those who do not, Paul Kanjorski does a good summary here). What we do, however, wish to demonstrate is the tenuous balance between physical money - yes, just like precious metals, there is actual "physical money", better known as currency in circulation - and more abstract, confidence-based, "electronic money." Now when it comes to talking about systemic instability, pundits often enjoy bringing up the case of the $600+ trillion (recently discussed here in a different capacity) in synthetic derivatives, whose implosion would "wipe out the world." While that may indeed be the case (the memory of the CDS-precipitated AIG implosion is still all too fresh), since nobody really can comprehend the side effects of the collapse of global derivative system, which by some estimates is over $1 quadrillion when combining exchange and OTC based derivatives, it is largely based on pure conjecture. And, as we demonstrate below, one doesn't even need to do get that high up in the pyramid of credit money. The truth is that should there be an American bank run, what would happen is the conversion of all electronic dollars into physical dollars, as retail Americans rush to empty their checking and savings accounts, exit their money markets, while institutional America converts all "shadow" liabilities into hard dollar assets (Zero Hedge has a specific methodology of defining what liabilities make up the shadow banking system). The truth is that should there be a D-Day in the American banking system and there is a global scramble for physical paper (ignore gold) the conversion ratio for binary dollars into hard ones could be as high as 30 to 1. Which begs the question: should one apply a 90% discount when evaluating their electronic dollar exposure? That, and many other questions too...

Physical dollars

When looking at actual "hard" dollars, there is just one place: the Fed's weekly H.6 statement which shows what the total amount of currency in circulation at any given moment is. The H.6 is the statement that breaks down the two forms of monetary stock tracked by the Fed: M1 and M2. Currency is at the very top. As a reminder, currency, together with Fed bank reserves are the only two actual forms of money "printed" into circulation. Yes, there is much polemic over the nature of bank reserves, but they, together with currency in circulation are the only two actual liabilities on the Fed's balance sheet, backed by such assets as Treasurys, Mortgage Backed Securities and, questionably, gold (questionably, because as Ron Paul has been crusading, the existence of gold on the Fed's asset side is taken on faith, and is based on promises by the Fed that it in fact exists, but nobody is allowed to actually see it).

So how many actual physical dollars are there? Well according to the H.6, as of June 27, there was $967.3 billion in currency currently circulating within the US economy, while the H.4.1 tells us that as of July 6 there was $1.66 trillion in bank reserves with the Fed, which if need be can be promptly released as currency to the wider public on demand (granted the dynamics of this release are completely unclear).This adds up to just over $2.6 trillion in "physical currency" (which also happens to be the "record" asset side of the Fed's balance sheet).

So that's what the the 'supply' side of money looks like in a dollar bank run. What about the demand. In other words, who will have the non-contractual "right" to pursue these $2.6 trillion in cold, hard cash?

Let's start with the M1, which is where the first tranche of electronic dollars is situated.

M1, in addition to currency in circulation, also contains demand and checkable deposits. The most recent number for these two is $982.9 billion. So far so good: if only demand and checkable deposits were pulled, the currency in circulation would be sufficient, although there would be a small impairment of just about 1.5%.

Next up, we go to the M2, which in addition to the M1 components, also contains such abstract concept as Savings Deposits, Small-Denomination Time Deposits and Retail Money Funds. The dollar values associated with these assorted claims on cash are $5,662.8 billion, $827.9 billion, and $698.7 billion respectively, or a total of just under $7.2 trillion. Add to this the roughly $1 trillion in non-cash M1 and you get $8.2 trillion. And this is where things start getting interesting. Because should every retail saver who has documented paper claims in America's checking, savings, time-deposits and money market pull their money, they would find that there is just $2.6 trillion in cash available to actually satisfy said claims.

But wait, there's more.

While the M2 conveniently ignores it, another major component of monetary aggregates is institutional money funds, which adds another $1.833.2 trillion in claims to physical fiat. Added across and we get just over $10 trillion.

But wait, there's more.

Remember how on March 23, 2006 the Fed discontinued the M3 because it was "too expensive" to keep track of all this "money." Well, courtesy of various replication loophole Zero Hedge has been able to track a far more comprehensive indicator of the broadest money stock in the US economy: the shadow banking system, which for all intents and purposes is the same as above: namely claims on actual money however more by institutional accounts than retail.

The breakdown, based on the most recent Z.1 (through March 31, 2011) is as follows:

  • GSE Liabilities: $6,577.8 billion
  • Agency Mortgage Pools: $1,166.3 billion
  • Asset-backed securities Issues: $2,280.6 billion
  • Securities Loaned by Funding Corporations: $709.0 billion
  • Liabilities in Fed Funds and Security Repo agreements: $1,263.3 billion
  • Total Outstanding Open Market Paper: $1,131.2 billion

Whipping out the calculator, and we get... $13.1 trillion in shadow banking system claims. Adding across with the M1 and M2 stock noted above and one gets $23.1 trillion. As a quick reminder, the physical money, in a best case scenario, is $2.6 trillion when adding reserves, and in a worst case, $967 billion. In other words, the paper to physical dilution is anywhere between 8.8 times and 24 times.

But wait, there's more.

Observant readers will recall that in our 2009 piece which before anyone else had even considered it, explained how the Fed bailed out the world with FX liquidity swaps, one of the key take home messages was that there was a synthetic short on the USD to the tune of about $6.5 trillion courtesy of the USD carry trade and other considerations. In other words, this is how many dollars would have to be conjured up into existence to satisfy existing electronic claims (and why the Fed had to scramble to implement the FX swaps when it did). One thing that is certain is that in an American (and thus global) bank run, all of the dollar shorts would cover in milliseconds as the carry trade would collapse instantaneously.

The take home is that courtesy of this latest and greatest demand on cash, there is up to another $6.5 trillion in potential claims on underlying hard dollars (and likely much greater as this BIS study was conducted at a time before ZIRP, and before the USD was the new, step aside JPY, carry currency of the world).

Summing it all up

Putting together all of the above, there are anywhere between $967.3 billion and $2.6 trillion in physical claim satisfying pieces of paper which everyone would scramble to grab if the sky was falling, and against these there are just under $30 trillion in paper claims on said hard paper. This can be seen visually on the indicative chart below:

Do readers see now why it is irrelevant to add X trillions or even quadrillions in derivatives? Because when just taking the plain vanilla electronic claims on circulating dollars there would have to be between a 11x and 31x haircut when everyone rushes to procure the suddenly all too precious pieces of paper with the picture of a dead president on the face.

For all intents and purposes this has been more of a thought experiment than any indicative scientific evaluation as there are many other nuances when analyzing all of the above. However, for the sake of esthetic purity, the truth is that no matter how one slices and dices it, there will be an unimaginable scramble to get out of electronic dollars and into physical ones. The amusing thing is that there are many who are worried that physical silver claims may be diluted by outstanding paper. This is true, however, ironically, it is very true when dealing with the heart of the fiat system. And recall that we refused to look at the $1 quadrillion in credit money at the derivative level. We believe that for illustration purposes, knowing that at best 10% of electronic money is covered in a worst case scenario should be sufficiently enlightening. As for those who say that all the Fed would need to do is merely hit the print button and not stop, remember: this money would simply flow to bank reserves. How it gets from there to outright currency in circulation is something the Fed has been bashing its head over the past 3 years, so far, unsuccessfully. And any money paradropped into circulation directly, would not do anything to alleviate the dilution factor as it would add to both sides of the "claim" and "deliverable" ledger (not to mention that it would also leads to instantaneous hyperinflation).

So, in the loosely paraphrased immortal words of Troy Mclure, now that you know, roughly, what a bank run would look like, don't do it.

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baby_BLYTHE's picture

Can't wait.

a WHOLE NEW DEBATE will soon emerge, never mind this fake 'debt ceiling debacle'

when the event of which is described above, got PMs (for realz)?

Sad most fail to recognize the economic reality of history once again repeating itself.

WhiskeyTangoFoxtrot's picture

I think I'm in love. Lol. Prep and wait for the soon-to-come fall. It's basically inevitable at this point

Vic Vinegar's picture

I love your ID and avatar dude.  But keep in mind...and why not dance to this song tonight:


Guy Fawkes Mulder's picture

Glad to see ZH talking about Bank Runs.

They really do mean martial law at this point.

Like we were looking at in 2008 -- like always happens in every credit money system -- boom, bust, bank run.

Get out of the Ponzi and stay out.

And don't get out of the Ponzi, because everyone else in the scheme needs you to keep dancing.


(for all you mouth-breathers out there: this link means you click to go there and then be sure to see comment 1265536 -- or ctrl+F "5536" -- it's a very relevant anecdote)

Weisbrot's picture


Looks like government corruption & inefficiencies will screw us every time





66Sexy's picture

Trade fiat digital currency, which can be taken away from you at any time, for a REAL precious metal: Platinum.

Or, silver if you like.

Like trading places: "Your debit card, please".

They can just 'turn off your chip'. SHut you down with one call from Joseph Lieberman.

Wake up, check your accoutns: $0.

"Sorry schmuck, we TOOK your money. whatcha gonna do about it? Sue us? HaHaHa"


fallout11's picture

You sure don't want to be in "physical" (lol) dollars, either. Look at every single currency revaluation of the 20th century, the old physical currency was either declared null and void after a short period of allowable trade in (at devalued levels, often as much as 10 old :1 new) or just declared null and void (or became that way via market forces).

knowless's picture

the only reason to hold dollars is for the short window where you can't get money out of the banks, but people still take dollars. think like, people are deer in headlights, well, you have a bunch of dollars (which are about to be worthless) you can topoff your reserves of food or gas or whatever from whoever is stupid enough to trade things to you for dollars even though the banks have halted electronic transactions.

duo's picture

I'll repeat:  When  the SHTF, cover your stash with shit and drive to Belgium

Yen Cross's picture

 Hey Vic . +1 W/T/F has been out of the (tumble weed) far too long.


   This isn't a dating site. And Blyth is but a junior contributer...

Nacho.Libre's picture

A couple of months ago I was at a luncheon where Fed Pres Fisher from the Dallas Fed gave a talk.  The numbers he threw out for physical cash that I was remembering was 906B, but billion here a billion there, you know.  Anyway, he called this "walking around money", money you have in your pocket.

What was very intersting that he said, that would be very relevant to this article, was that about 60% of all physical walking around money was outside the US.  Looking a the bank run scenario again with only 40% of the available cash now takes on different light.  And if you all remember, the recently printed up $100B of new $100 dollar bills were screwed up and they have to go physically sort through them which, even if they had a high speed sorter, would take over a year!


Tense INDIAN's picture

Bend OVER ...ROLL OVER...and take it in the ASS....

Sudden Debt's picture

Pfft....the FED would just start printing 1000,10.000 and 100.000 bills. Maybe even 1000.000$ bills.

It would only take a week to supply the market with those "Hard" paper dollars.



The real problem starts AFTER a bank run. When there are so many paper dollars in ciruclation that everybody starts asking himself: is this paper or money?

And then real hyperinflation kicks in.




brodix's picture

Reagan on the thousand. Bush 1 on the ten thou. Clinton on the hundred thou. Bush 2 on the million. And at the rate it's going, Obama on the billion.

Sudden Debt's picture

I think they'd better use Disney characters which are international more know and respected than those presidents.

But if you want to stick to those characters, they can first make a cartoon of them.

Cirgar Clinton, Bomb Away Bush, Looney Bush Junior, Obama Dumbo and Dementia Reagan the Second generation... something in the line of X-men.

css1971's picture

Ding, we have a winner.


Y'know, I bet they already have the notes printed.


WmMcK's picture

I (not John Marshall) will return on the $500.

It'll rhyme with '29, bitchez. (with security added)

$500: William McKinley
$1,000: Grover Cleveland
$5,000: James Madison
$10,000: Salmon P. Chase
$100,000: Woodrow Wilson



White.Star.Line's picture

Someone had some good coffee this morning, with an unusually valid point to make in the early AM.

Yes, since when would a lack of paper and 0s keep a printer of usury notes from meeting demand?

Not that it really makes a difference.
Hyperinflation from too much money, or collapse from having none.

End result the same....

Bansters-in-my- feces's picture

" as of July 6 there was $1.66 trillion in bank reserves with the Fed, 

Nice try....next joke.

zorba THE GREEK's picture

 A bank run is not going to happen because the treasury will just announce that all deposits

 in banks, money markets, and CD's will be backed by the full faith of the United States Treasury.

 That's the only thing that backs up paper currency as it is. So where's the problem? Now if 

 everyone wanted their money redeemed in Gold, now you got a problem. 

Tyler Durden's picture

The entire point of this post is that the thought experiment of the bank run would occur when said full faith is exhausted.

Spitzer's picture

I didn't think a physical Thai baht in 1997 was worth more then a virtual one but I never looked at the data.

Too much emphasis on quantity in this post. Quantity has little to do with it.

random shots's picture

This post is the equivalent of...I better not drive a car because I might get into an accident and die.


You are getting closer and closer to fear mongoring everyday that passes.

Spitzer's picture

You know nothing about basic economics.

TruthInSunshine's picture
by random shots
on Mon, 07/11/2011 - 01:12

This post is the equivalent of...I better not drive a car because I might get into an accident and die.


'Those who ignore history are destined to become roadkill at some point.'

- Author unknown


Do you really believe it's not possible many of us will see a bank run in the U.S. at some point in our lifetimes, especially given the trajectory that we're witnessing form?

$250,000 in FDIC insurance on deposits won't stop a stampede under an entire litany of scenarios.

While I'd never be able to hazard an accurate estimate of the odds of this happening, I will say that it's my humble opinion that it's far larger than most people suspect, whereas you at least appear to insinuate that it's almost impossible.


1100-TACTICAL-12's picture

Why any one would keep other than money to pay bills in the bank, is beyond me. And will fully deserve the hosing they someday will receive..

mickeyman's picture

In the event of a collapse the gov't will have no choice but to accept electronic dollars to pay your taxes. Likewise your mortgage and any bank debts would have to be accepted in order to maintain appearances. You would need cash for any nonessentials such as food.

Up here in Canada, due to the linking of the banks, there will be no such thing as a bank run. If one goes, they all goes. But I've often wondered--if all the banks fail, and then the government sends you a cheque for the total amount you had on deposit--where do you go to cash it?

Meatier Shower's picture

"You would need cash for any nonessentials such as food."

Erm....I am sure that even in Canada, food is not nonessential, eh?

Pondmaster's picture

With all due respect to Tyler's work , I have to agree . I detest fear mongering . ZH should be above that .Its insulting to a persons intelligence . Use your scenarios in a movie script please , and not here . nuff said .

flacorps's picture

It's more like "if this theatre caught on fire, could I make it to the exit?"

Calmyourself's picture

The more you stumble about in the dark the closer you are to a nasty toe stubbing..

sasebo's picture

Clearly TD is not saying that there is going to a bank run. He's just pointing out that there is not enough paper money to cover one. What you do about it is your business. And I might ask, who determines if there is a bank run? You?

narnia's picture

bank holidays.  that's what would happen.  

it's hard to imagine this whole thing unfolding without at least one physical currency panic. they'll just call a series of holidays, fire up the presses & purchase worthless debt so granny can pull out her soon to be worthless dead presidents.  

btw, the $23 trillion number is pretty close to my calculation of the REAL US national debt, excluding the NPV of entitlements & international alliances liabilities (IMF, World Bank, etc.). 

UgglyBetty's picture

Agree 100%. They may let some banks fall, but in the event of complete lost of credibility, no one will be allowed to take out the money from the bank. We know that very well down here in Latin America. That's why you know you cannot keep your savings in banks, every 8-10 years a new liquidity problem arises and the same thing again: bank holidays, deposit confiscation, extraction limits, currency exchange prohibitions, and so on, the same tune over and over again for decades now. That's why people keep dollars in bills, not electronic, "under the matress" or in safety boxes. Money in banks is just transactional, day to day operations; real savings are not there.

cranky-old-geezer's picture

A bank run is not going to happen because the treasury will just announce that all deposits in banks, money markets, and CD's will be backed by the full faith of the United States Treasury.  That's the only thing that backs up paper currency as it is.

"Full faith and credit of the US Government" has to do with the government paying its debts.  

It has nothing to do with the currency, which the US Treasury has no control over.

I don't foresee a bank run in America. If demand for physical currency suddenly skyrocketed, the Fed would declare a bank holiday, you can't get your money out, end of story.

The real threat is a dollar collapse, where the rest of the world suddenly loses confidence in the US dollar.

That's exactly what the growing CRIIPE alliance is quietly working on, taking the rest of the world away from the US dollar.

When (not if) that happens, OPEC nations will suddenly stop accepting US dollars for their oil. 

Not even Iraq.  America will be kicked out of Iraq (and Afganistan) instantly under threat of China / Russia / India / Iran / Pakistan nuclear attack. 

Forget Brent crude too, Britian will join the alliance (along with the rest of Europe) and back away from America.

America won't be able to buy oil anymore, at any price. Bernokio can print all the currency he wants, it won't matter, America won't be able to buy oil for any amount of dollars, those dollars won't be accepted by OPEC. 

Domestic oil production will be nationalized, fuel will be severely rationed.  It won't matter how much gold and silver you have, you won't be able to buy fuel except perhaps on the black market, and it won't matter, the American economy will collapse into chaos quickly, you won't have a job to go to, and store shelves will be empty.

That's when the US dollar collapses and America collapses in a few days or weeks.

By the way, Israel will be hung out to dry.  Sure they have nukes.  But Israel would be turned to glass if they tried to use them, so Israel will back down and go along.

S-C-O.  That's the most frightening three letters to America's (criminal) leaders now.  They know what it means and they know America's time is almost up.  That's why they're looting America fast as they can now.  They know America doesn't have much time left.

Green Leader's picture

Doesn't USA (I mean, the FED) have plenty of Iraqi Dinars to buy oil with?

Wasn't that part of the plan? Invade, devalue currency, issue new bills, revalue tham years later, pay for the war and make a profit. Whether the plan works out or not that's a whole different story, but that could very well be the bankster's back door...


Yen Cross's picture

 You are kidding? Green and red?

TruthInSunshine's picture
by Green Leader
on Mon, 07/11/2011 - 06:34


Doesn't USA (I mean, the FED) have plenty of Iraqi Dinars to buy oil with?

Wasn't that part of the plan? Invade, devalue currency, issue new bills, revalue tham years later, pay for the war and make a profit. Whether the plan works out or not that's a whole different story, but that could very well be the bankster's back door...



You see clearly.


The U.S. has major bases in Saudi Arabia, Kuwait, U.A.E., Iraq AND QATAR, which together produce a big, big chunk of the global oil production. Iraq has the world's 3rd largest proven oil reserves (8%); that's larger than Iran, and almost as much as Canadian oil reserves (with Canada having much of that oil locked up in tar sands, which has a higher extraction cost).

China is fiddling around in Africa, "buying up dictators, land and oil," when Nigeria is the basic play there, and Africa produces 9% of the world's oil supply in totality (barely more than Iraq), while the U.S. has major military bases that control, directly or indirectly, about 40% of the global oil supply (subtracting Iran from the middle east producers), in the Middle East, alone (it can be argued Libya is already under our indirect control).

No one has outmaneuvered the U.S. in what is a dirty, dark chess game of oil real geopolitics.

Turning to our immediate neighbors who produce quite a bit, Canada and Mexico - are they really going to stiff the U.S., for a whole wide variety of good reasons to not do so (putting it mildly)?


Green Leader's picture

From what I've read, China has around 83% of new oil well leases in Iraq.

The plan is going on, whether it holds or not that's another story.

Henry Chinaski's picture

What is the major U.S. base in Saudi Arabia? Check your facts.

fallout11's picture

The US once had 8 bases in Saudia Arabia, as recently as 1996. However, as of 2003 all US forces have been moved to Qatar.

Bob Paulson's picture

The US will ramp up production of its own oil, of which it has plenty.

Domestic oil nationalized? Not in our lifetime.