Korean bank run

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by David Malone

Just a very short note – I have to catch a train – but before I go, take a look at what is brewing in Korea.  Zerohedge has been following this one from the beginning reporting on the run on and closure of Busan II bank.  They followed up with this one on how the run was spreading.  This article from the Korean Times yesterday says it’s now 7 banks that have gone down and the reason?

The nation’s financial regulator said Tuesday that it has suspended one more savings bank reeling from massive construction financing loans defaults.

Massive construction loans – who’d have guessed.

Question – were the loans all for construction in Korea or might some of them have been for a construction in China as well?  Either way the Koreans are not on top of this yet and the run is not contained.

The story of the collapses is sadly familiar.  The banks were not holding even the minimum capital.  The question today is why?  Where had it all gone. And of course the answer is they were leveraged and had lent that money out to deals that are now failing.

That the banks ran out of liquidity means that the banks had lost faith in each other and were not willing to lend on the interbank market leaving each of them short of overnight cash.

The plan to ‘save’ the system is also familiar.  The central bank is having larger banks provide cash for the failing banks by buying up ‘assets’ or by acquiring the banks outright (buy the lot) .  Of course this neither makes the bad loans go away it merely moves them to a bigger vault where they can rot in more luxurious surroundings.

And this isn’t the first time this has happened, Which hilariously is cited as evidence, not of incompetence, but to suggest it will all be fine because – we’ve done this before’.

Oh great.

 

 

David Malone is the author of the book Debt Generation. You can read and listen to excerpts from his book here: http://www.debtgeneration.org/index.php