Does Direct Deposit Slow Bank Runs Down?

Moneybox
A blog about business and economics.
May 16 2012 2:38 PM

Does Direct Deposit Slow Bank Runs Down?

Capital is fleeing the Greek banking system and to a lesser extent other southern European banking systems, but we don't yet have a proper bank run. In a bank run everyone rushes to the bank to get their money out before the other guy takes it out first. Greece is having what people are instead calling a "bank jog" where money is clearly fleeing the system but there's no critical day of total panic. It seems odd.

Without knowing anything about how this works in Greece, it makes me wonder if the rise of direct deposit hasn't made old-fashioned bank runs a bit more logistically difficult. If we eliminated deposit insurance tomorrow and I lost confidence in the American commercial banking sector I still wouldn't close out my account at PNC. Why not? Well, without the bank account I can't get paid. Nobody's handing me checks, it just goes into the bank account. And I don't write a check to pay my mortgage, Bank of America just hoovers it out of my account. Those kind of automatic setups seem to me to make a "jog" scenario in which I take a lot of funds out of the account without rushing to liquidate it more likely.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

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