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A Banking Crisis Looms

Authored by Tumas Malinen via The Epoch Times


My columns have turned rather apocalyptic of late, but for a valid reason. Just this week, we got confirmation that our financial system is, again, on the brink of collapse, when the Bank of England (BOE) was forced to enact, de facto, a bailout of the pension funds of the United Kingdom.

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It is now clear that an outright financial collapse threatens all Western economies, because if pension funds, often considered very dull investors because of their risk-averse investing profile, face a threat to their insolvency, it can happen to any other financial institution. I consider that the banking sector will be the next in line.

Banking is a business of trust. If the trust in a bank or in the unlimited support of authorities for the bank, disappears, a bank run commences.

One of the most prominent scholars of financial crises, Gary B. Gorton, defines a financial crisis in his book “Misunderstanding Financial Crises: Why We Don’t See Them Coming” as “an event where holders of short-term debt issued by financial intermediaries withdraw en masse or refuse to renew their loans.”

In common language, Gorton says that during financial crises, a large number of holders of banks’ financial liabilities, such as deposits, want to cash out. Hence the name: a bank run.
Full @
https://www.zerohedge.com/economics/banking-crisis-looms