Korean Bank Runs Escalating, Should The US Be Concerned?

Elizabeth Kraus
 
Almost every single day a new headline pops up in the financial news. Oil spikes, inflation, US dollar and Euro falling, riots, protests, and now as we are heading into March, based on fundamental, technical, and cyclical reasons, the situation surrounding the globe is increasingly strong to challenge the global banking scheme. It seems the Koreans are the first of the 1st world countries to get the rest of their money out of fraudulent banking systems. A total of 490 billion Won was withdrawn from 98 savings banks Monday, despite the financial regulator’s assurance that there will be no more shutdowns of such institutions.The amount is up 60 billion Won compared with Friday, when the Financial Services Commission (FSC) suspended operations of four savings banks. The withdrawals came after the FSC confirmed that it will avoid suspending operations of additional savings banks unless in an emergency, such as a bank run. As South Korea’s regulators try to head off a run on the nation’s savings banks, Financial Services Commission Chairman Kim Seok-dong has been taking the message to the people – even trying to convince people all is well by putting his own money into one of the banks and asking customers to refrain from withdrawing their money. However, apparently the courageous decision by Kim Seok-dong to deposit his own $20 million in a troubled bank has not done much if anything to prevent the locals from realizing, that their banking system is built on a house of cards.

According to the FSC notes, there has been a total of 4.6 billion Won in withdrawals as of 2pm Monday compared with 34.1 billion Won on Friday. After a first run on Friday, S-Korea had to suspend operations at 4 more banking institutes on Monday, even though they said on Friday everything was well and under control. While the Bank of India (not to be confused with the Reserve Bank of India, India’s central bank) recently announced that it will be offering real-time settlement of transactions in Chinese yuan to move, which came under strong support from Chinese regulatory authorities, it marks a step away from the US dollar in international transactions. Such moves, coupled with the notion that central banks outside of the US are leaning towards tightening money supply (i.e. raising rates), with other banks are shutting down, brought the latest massive Korean withdrawals from savings banks over the past week, reports The Korean Times.

While “we believe there is a dangerous threat at home and over abroad in the uprisings oil supply and oil price spike which is going to be anything but short lived,” says Morgan Stanley, the global financial situation beyond the Middle East instability trend, will look like a small potato to the much bigger problem beginning to lurk in global banking system. As the situation in Korea intensifies, we may see central bank intervention or intervention from the IMF. Ultimately, I think this would be bearish for the Korean Won, and may be an opportunity to “buy the rumor, sell the news” – meaning short the Won now, and close the position when devaluation is announced. These types of moves though, coupled with the notion that central banks in and outside of the US are leaning towards tightening money supply (i.e. raising rates), may also help bring about our own US dollar bearishness, while being bullish for gold. “Currency reform is going to happen globally and the Won is the first currency to experience pressure for reform.” Ron Fricke president of Regal Assets says Tuesday in a news conference. “Central banking systems globally are on the brink of collapse and it is only a matter of time before all global currencies are reformed”.

Is there something to be concerned about what happened in Korea that could happen in the US? There are a lot we are not being told. The root problem is the need for a new global monetary agreement. On the upside, so long as these problems continue, precious metals will rally. This adds to the growing list of reasons to be long on precious metals, and further suggests that the top in the metals market is far away. If the currencies are all interconnected, and all failing at some time, or in sequence, even $5000/oz gold is not totally out of the realm! In many ways this is simply an example of the global banking crisis we are currently in the midst of, born out of faulty loans made in a global housing crisis. It seems South Korea has become the forerunner, perhaps even a global eye opener to shows the world, how out ethics creates instability throughout the banking systems. In all likelihood, its probably is no different than the worldwide uprisings taking place about the people demanding a higher quality of life instead of living in suppression.

“The saving banks were supposed to submit a management improvement plan to the FSC by Feb. 24,” said Kim. “We will now have to review whether [the closure] is even legally O.K.” Bae Joon-soo, senior FSC deputy director, replied, “I think it is legally and morally wrong for a financial firm to do such a thing that happened.”
Now we get it: according to the banking cartel’s ethical standard it is “legally and morally wrong” for a bank to admit it is insolvent. Perhaps if America had made this clear 2 years ago, we could have spared ourselves two years of finger pointing and fictitious lawsuits. After all, say what you will about the tenets of banker national socialism, at least it’s an ethos.
And while the financial regulator and the Federation of Savings Banks failed to persuade Domin Bank of Korea to resume its operation yesterday, the bank in notices posted on the doors of every branch said that it had taken the move “as a means to soothe the crisis involving massive withdrawals.” The notice continued, “We will resume operation after we are reborn as a sound savings bank by increasing our paid-in capital to achieve a capital adequacy ratio of 8 percent.” We repeat our appeal for the FDIC and Treasury to send our crack fraud and book cooking team to guarantee to the Koreans that their bankrupt banks are perfectly ok before this thing gets really out of control, and migrates to China, where a billion man bank run will be a little harder to keep under wraps.

Its worth noting, that Korean monetary authorities have attempted to instill confidence in the banking system, but the withdrawals continue nonetheless. Distrust of the Korean government is at highest levels. This type of a run on the bank, and the market’s lack of belief in the ability of the government in question to stabilize the economy, are historically conditions that lead to runs on a currency and the ensuing bout of rapid price inflation. Such geopolitical dissatisfactions running high from one end of the globe to the other, will be big supporters for investors in gold and silver. Ranging from North Korea to Iran. Some $62 billion has already been invested in precious metals in the three years to December 2010, the Central Bank reports. And, Goldman’s emerging markets guru — who invented the BRICs — Jim O’Neill takes a bullish stance on the Arab revolution for gold.