Monday, July 14, 2008

About Those Bank Lines

The bank line stories are coming out of California, as a result of the failure of IndyMac and its takeover by FDIC. Nervous bank account holders lined up outside IndyMac branches. Whether standing in line makes the most sense or not is a question all itself, but first I am going to the discuss the lines themselves.

Many years ago, I investigated a bank run in New York City's Chinatown. At some point, I spoke to a very talkative branch manager at the bank. The bank run had the same long lines, which always confused me. I asked, "Why are the lines so long. It usually only takes a few minutes to make a withdrawal?"

This is what she told me.

She said, after the bank failed, Federal regulators came in and held a meeting, before the bank opened, with all employees. The regulators told the employees, this was not the time to take short cuts, in fact, they were to go very slow servicing the customers and make the customers fill out every form necessary to make a withdrawal. The Feds apparently supplied additional forms. Further, they were to have the customer fill out the paperwork right at the tellers station and the teller was not to take the next person in line until the first person had finished the paperwork and the withdrawal. The message from the Fed was s-l-o-w, v-e-r-y s-l-o-w to bank employees.

The manager told me that there were two reasons for the Fed's slowdown. The first was that the Fed needed a stall to actually get enough physical currency to the bank (And that was a small bank, not the $32 billion IndyMac bank). The second reason is to discourage more people from getting on to the line.

Thus, this should explain this report from The Orange County Regster:

IndyMac customers across Orange County finally were getting help with their accounts today after the bank reopened for the first time since it was taken over by federal regulators Friday.

It was slow-going, however, as the branches limited access to 10 or 12 customers at a time, with as many as 200 people in line. At some branches it was taking an hour or more for those admitted to complete their business...A few minutes before the Laguna Woods branch opened...An Orange County Sheriff's deputy announced from his patrol car that the bank would be letting in 10 people at a time....

It took more than an hour for the first customers who got in to complete their business, suggesting it was going to be a very long day for those waiting outside in the blazing sun.

As for those who have money in a failed bank, your funds are protected by the FDIC up to $100,000. There is no need to pull it out in a panic, it will be there tomorrow and the day after.If you want it out and have checks associated with the account, right a check and depost in a different bank. If you have more than $100,000at such a bank, good luck.

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