According to Eric Cantona (!), it will: http://www.bbc.co.uk/news/magazine-11811238
Is he right?
Yes.
Only if the wealthy take part. If business owners keep their wealth in the banks, it will just jack up rates. Income will still be substantial, just slightly smaller. And then they will get bailed out by the government.
Business as usual. Only more expensive for the consumer.
Bail out.
What the hell are you talking about? Nothing you say ever makes sense.
This is like asking if furniture warehouses would go out of business if people stopped storing furniture. Of course they would collapse. This really doesn’t even have to do with fractional reserve banking; a bank without cash holdings is a bank without customers.
If only poor people take their money out of banks, it will not be a substantial loss. No/not many banks would see even significant drops in their business. Those small drops would be taken care of bye jacking up rates on everyone else. Those higher rates will be passed on to the consumer. And if it gets too bad, governments will just bail them out.
It’s child’s play to see what would happen. I mean, c’mon.
You want to define ‘poor’ and ‘rich’, provide statistics on their relative cash holdings in various banking firms, and then demonstrate why the difference wouldn’t drive them to failure?
Banks, despite their cartelization, still compete with every other product in existence; as well as foreign countries. It is hardly ‘child’s play’ to prove that they could arbitrarily shift the loss over to remaining customers and expect them to remain customers. Especially megamillionaire firms who already do a lot of their banking and depositing in places like Switzerland, Liechtenstein and Singapore.
During the early days of the GFC, the Australian PM declared that the government would ‘guarantee’ the banks, i.e. if people were withdrawing so much cash that the banks were running out, the government would gladly print/steal more for them to use. I believe this was also the case in other countries. If a mass withdrawal were to occur, I think it’s likely that the government would ‘guarantee’ the banks - at least in an attempt to stop the withdrawal before the banks went out of business.
Most countries have cash withdrawal/deposit limitations in place. Even if I were to withdraw, say, 4000€, which is within the legal withdrawal limit, I would have to give my (or any other) bank a week notice because of “internal policies”. Please note that this was officially done to “prevent money laundering by organized crime cartels”…
And I am not joking.
Banks do not hold nearly as much cash as people think. This reasons why banks require notice on large withdrawls has less to do with AML laws and more to do with the fact that there is simply not enough money in the building to process your request. This isn’t because of nefarious fractional reserve practices, but because 1) it would be literally impossible to match deposit numbers since most funds are transferred electronically (checks or wires) and 2) it would be a huge risk and time cost to hold 30 million dollars when a branch could operate on 200,000.
The FDIC and FED would step in if it was just a protest from just a portion of the population.
But yes if there were massive bank runs to withdraw physical cash the system would break down, the treasury could not print enough physical cash to keep up with demand. The printing of physical notes would create problems of its own.
A mass cash withdrawal?
Buy time…