Hong Kong bank has classic ‘Bank Run’ as depositors panic

September 24, 2008 by · Leave a Comment
Filed under: Industry News 

This train my be running away from the station. People are starting to get jittery and they are seeing the writing on the wall with this global effort to bailout and perpetuate a flawed financial system. The most we intervene in the markets the worse it will get until we go past the point of no return when the public has lost all faith in the monetary and investment system and seek safe haven in other assets like real commodities and wait on the sideline for the market to purge itself. This story states that there is no problem and it was a “baseless rumor” that started this bank run. With the amount of spin that is going around, I find myself skeptical that things are not serious in this situation. Time will tell.

News:

For the first time since the Asian financial crisis more than a decade ago, Hong Kong has faced a bank run.

Hundreds of depositors lined up at the city’s third-largest lender Bank of East Asia Ltd. yesterday as the bank hit out at “malicious rumors,” and Chairman David Li rushed back to Hong Kong from the U.S. to reassure clients and investors. The city’s central bank jumped to BEA’s defense and police said they’re investigating phone text messages questioning its health.

“The rumors were groundless,” Li, 69, told reporters at Hong Kong’s airport late yesterday. “The bank has no problem.”

BEA’s woes underline how a year of turmoil in financial markets has undermined confidence in the global banking system. Britain’s government last year bailed out mortgage lender Northern Rock Plc after a run. The U.S. took over American International Group Inc., the nation’s biggest insurer, to prevent the worst financial collapse in American history.

In Singapore, customers thronged outside the offices of AIG’s local unit this month to terminate their policies.

BEA gained 3.2 percent in Hong Kong pre-market trading after dropping 6.9 percent yesterday. The 90-year-old lender said its “exposure” to bankrupt Lehman Brothers Holdings Inc. and AIG is less than 0.2 percent of assets.

Joseph Yam, chief executive of Hong Kong’s central bank, today urged depositors to “stay calm.” Under Hong Kong’s deposit insurance program, bank depositors are protected up to HK$100,000 in the case of a bank failure.

`Anything Can Happen’

The Hong Kong Monetary Authority injected HK$3.88 billion ($500 million) into the banking system today, after the interbank lending rate surged yesterday.

BEA Executive Director Joseph Pang said at a press briefing in Hong Kong late yesterday that he didn’t know where the rumors originated.

As Pang spoke, hundreds of people surrounded the 90-year-old bank’s branch at Des Voeux Road in central Hong Kong. Similar crowds also amassed outside a Caine Road outlet, and managers had to turn people away at closing time and ask them to return the next morning.

The lines continued today, with about 70 people queuing outside the Des Voeux office at 9 a.m. One woman brought a chair.

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