US banks experience major withdrawals during first week of January

For some reason, the first week of January 2013 saw a large withdrawal of deposits from US banks, the largest since the 9/11 terrorist attacks. As reported in Russia Today, the US Federal Reserve saw $114 billion withdrawn from 25 of the US's largest banks in the first week of January 2013.

The reason for this spike in withdrawals is not clear. Some analysts believe that it could be because the Transaction Account Guarantee insurance program ended Dec. 31, 2012 and therefore people are withdrawing money that is no longer insured. The insurance program had been introduced during the 2008 crisis to support the banking system. It provided insurance for about $1.5 trillion in non-interest bearing accounts, but the limit of insurance for any account was set at $250,000. Small and medium-sized banks were targeted by the program as they were thought less able to weather the crisis than larger banks.

However, what surprised analysts is that the withdrawals are from larger banks that were considered safe. Expectations were for depositors in small and medium banks to put their deposits in the bigger banks when the insurance program ended. Some think that the withdrawals simply reflect the fact that money is often needed at the beginning of the year for various purposes. Other analysts think that money is taken out to be invested as the economic outlook improves somewhat. Other data suggests that some money is just being moved from one type of account to another.

Most other reports on this issue rely on the Russia Today article. Unfortunately it has no link to the Federal Reserve Data that it uses in its report. However, I did find another report in the Washington Times.. The Times report indicates that the withdrawals represented 2 percent of deposits in the 25 largest US banks. The end of the TAG insurance program was expected to create a run on smaller banks but they lost far less than the large banks, at just 0.9 percent of their deposits.

Last year, in May, a survey was carried out of searches for "bank runs." The number of searches by Americans set a record high then. However, the data also reveal that among countries US searchers only came third after people from Singapore and Hong Kong. Greece came in fourth. The Greeks were too busy withdrawing money from banks to search for "bank runs."

As the appended video shows, there was also a bit of a run on gold this month too, as Germany sought to repatriate gold held elsewhere. One would think gold would be going up as well, but that is not happening yet.

Click on the Watch on You Tube notice to see video.