What Happens with a Bank Holiday?

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Mr. Fri's picture
Mr. Fri
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Posts: 220
What Happens with a Bank Holiday?

Since I'm not as good with financial matters as many of you, I need to ask a stupid question. 

I keep hearing the term "bank holiday" in reference to emergency closings of banks.  What do you mean by this?  Is it a short term closing or is this what happens just before a bank folds?  When there's a bank holiday does that mean we just can't take out cash or is the whole electronic banking system shut down as well?  I thought the reason for the closing was due to the lack of cash on hand.  Would we still be able the do electronic transactions (auto deposits, on-line payments, etc.) with non-paper money or would everything stop?  

SamLinder's picture
SamLinder
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Re: What Happens with a Bank Holiday?

Mr. Fri,

It's a good question. I thought it would be easy to find links explaining what happens but it turned out that there is sparse information available. I have provided two links below that will help by describing the last "bank holiday" in the U.S. in March 1933.

The key phrase from the second link states, "On March 5--the day
after being sworn into office--Roosevelt stepped into the breach and
declared a "bank holiday," which, for four days forced the closure of
the nation's banks and halted all financial transactions." (emphasis is mine)

Based on that wording, it would appear that all financial transactions were indeed suspended. Of course, we now have an electronic banking system that didn't exist back then. Would all that shut down as well - including ATM's? I would think so if the intent is to suspend financial activity until they sort things out. What the reality really would be - who knows? I hope we never find out!

http://en.wikipedia.org/wiki/Emergency_Banking_Act

 

http://www.history.com/this-day-in-history.do?action=Article&id=5755

March 5, 1933

Roosevelt declares bank holiday
When Franklin Roosevelt started his first term in the White House in 1933, he inherited a nation in the depths of the Depression. A record 13 million Americans were unemployed and businesses were drowning in red ink. Perhaps even more pressing was the head-spinning string of bank failures which had triggered a frantic run on the Nations savings vaults. The wave of withdrawals by panic-stricken depositors further dried up banks' already-depleted supply of liquid assets and pushed the nation's banking system to the brink of disaster. On March 5--the day after being sworn into office--Roosevelt stepped into the breach and declared a "bank holiday," which, for four days forced the closure of the nation's banks and halted all financial transactions. The "holiday" not only helped stem the frantic run on banks, but gave Roosevelt time to push the Emergency Banking Act through the legislative chain. Passed by Congress on March 9, the act handed the president a far-reaching grip over bank dealings and "foreign transactions." The legislation also paved the path for solvent banks to resume business as early as March 10. Three short days later nearly 1,000 banks were up and running again.

Davos's picture
Davos
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Re: What Happens with a Bank Holiday?

From the stuff I have read it works like this:

Front door of bank is shut, either you can get some money out, long lines and a quota on the amount, and a small hor window of oppertunity - or you can't get money out. Today, with CC and Debit cards and check I have no idea if they would work - or even be accepted by merchants...

Back door of bank stays open, they are there to collect your mortgage and loan and credit card payments.

There were some good articles on this, I'll search my spreadsheet for them, Argentina also.... Take care 

mpelchat's picture
mpelchat
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Re: What Happens with a Bank Holiday?

Hello,

Look at what happened in Argintinia around 2000 to 2002.  They had a bank holiday in that time frame.  As I recall, it was bad, the currency lost half its value and you could not get money out to buy stuff untill after the holiday.  Than I beleive you could only take out a very limited amount per week after that for a long time.

I am going off memory, so I advise to look it up.

Mr. Fri's picture
Mr. Fri
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Posts: 220
Re: What Happens with a Bank Holiday?

Most of us are thinking that in a financial meltdown the banks would not be a good place to have money.  During a bank holiday the dollar could lose value (like the Argentina example) or with a failed bank, and the FDIC broke, there wouldn't be any money left to collect.  I'm thinking of rolling over an IRA account to a physical gold IRA account. (For example, http://www.goldstartrust.com/IRAPrograms.htm). The question is, would I have access to the gold if there's a bank holiday or if the bank fails?  (Actually it's a trust company - I don't know what the difference is.)   I sure would hate to have my gold in a secure place and not be able to get it.  No one knows the answers for sure but I'd like to have some other thoughts on this.  Has anyone else gone this route?

Mr. Fri's picture
Mr. Fri
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Joined: Feb 21 2009
Posts: 220
Re: What Happens with a Bank Holiday?

Can someone comment on my question? 

Again, I not looking for someone to say this trust company is safe because no one can say that.  I'm looking for some comments and insight.  I really don't have anyone who I can talk these things over with except for the CM community.  Anyone else who I know who could have insight thinks I'm crazy when I talk about TSHTF.  With the pace of bailouts/failures increasing and me being late in realizing what's happening, I'm starting to panic that I'm going to loses my savings.

SPM's picture
SPM
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Posts: 241
Re: What Happens with a Bank Holiday?

I get the crazy look myself. You wish more people would listen.

I can only answer your question as I see things. I did something similar to you only I have cashed it out for physical PMs in my hand. I just did it Friday, so I hope TSHTF doesn't happen before I get it in the mail. They have already taken the funds out of my bank account for it.

I think if financials are going to fail, its going to wipe everything out. Every fake electronic dollar.

Don't know if I answered your question, but thats how I see things.

Ragnar_Danneskjold's picture
Ragnar_Danneskjold
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Joined: Feb 23 2009
Posts: 100
Re: What Happens with a Bank Holiday?

What happens with a Bank Holiday? 

Funds in your account would be frozen (no withdrawals) for the duration of the holiday.  So, you could be relying on whatever cash you happen to have in your pocket for some indefinite period, or you might have to resort to bartering, or asking for credit and probably getting gouged.  

Frankly, I think this would be unconstitutional in the US (they're basically taking your money for whatever period), but there is precedent in the 30s.  You can be sure there would be massive protests.

Panic is never good.  Just think things through, and do whatever is needed for your well being.

jerrydon10's picture
jerrydon10
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Joined: Mar 2 2009
Posts: 442
Re: What Happens with a Bank Holiday?
Mr. Fri wrote:

Most of us are thinking that in a financial meltdown the banks would not be a good place to have money.  During a bank holiday the dollar could lose value (like the Argentina example) or with a failed bank, and the FDIC broke, The question is, would I have access to the gold if there's a bank holiday or if the bank fails?  (Actually it's a trust company - I don't know what the difference is.)   I sure would hate to have my gold in a secure place and not be able to get it.

It varies by state as to the difference between a bank and a trust company. If it is a trust company only (there are institutions that act as both and you can tell by their title such as 1st National Bank and Trust...etc.), then they would only do trusts. They may prepare living trusts, asset protection trusts, holding trusts etc. for people, then manage those assets in the trusts sometimes going so far as to be the sole successor corporate trustee of the trust.

They are just as trustworthy as a bank (use your own judgement with that remark ;0). They are heavily regulated and in fact regulated by the same people that regulate banks in my state.

It would be nice if you could just put the metals into your own safe and keep them in your IRA, but you cannot as the feds prohibit that.

Ironically, Gold Star Trust is not allowed to do that either. Regulations require that metals be held by an approved depository. GoldStar is not one; consequently, GoldStar has contracted with HSBC
Bank USA's precious metals depository to actually secure the metals.

So your worries should surround HSBC as well and, gee, haven't I read somewhere that they are not doing so hot right now?

Sorry, I just don't trust much of anybody in these troubling times except the institution I own. I call it Hip National Bank. Tongue out

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