12% of Deposits Withdrawn From The National Bank

The withdrawal of US$660 million dollars in deposits (12% of the total) in two months, increases the possibility that the Central Bank of Nicaragua (BCN) is forced to take some drastic measure to address this problem.

One of these measures involves limiting the amount of dollars that the public can withdraw from banks.

If most of the deposits were in córdobas, it would be solved by printing money.

Will there be a “financial corralito” – a measure to stop a bank run, when a large number of people withdraw their money from a bank – in Nicaragua?

Although 12% represents a level of withdrawals that worries any analyst of the system, economist José Luis Medal does not believe that the BCN is on the verge of dictating such a controversial measure that although it would temporarily alleviate the hardships of the banks, it would end up generating a panic that could be more harmful.

If such a measure, a corralito, would be adopted, it is purely a decision of the BCN and not that of any individual commercial bank.

According to a report by Confidencial, the economist says there is no precise number of what level should deposits fall to order a financial corralito, but experts agree it is not a very high percentage. That is to say, it can not be, to give an example, 30% of the deposits. The reason is simple: banks do not have all the deposits stored in their vaults. The bulk of the deposits are in loans granted to customers. A part of the deposits is kept in the Central Bank as legal reserve, and another part in cash in the vaults of the banks.

The term Corralito (Spanish pronunciation: [koraˈlito]) was the informal name for the economic measures taken in Argentina, in the midst of a crisis: heavily indebted, at the end of 2001 by Minister of Economy Domingo Cavallo in order to stop a bank run, and which was fully in force for one year.

On 1 December 2001, in order to stop this draining from destroying the banking system, the Argentinian government froze all bank accounts, initially for 90 days. Only a small amount of cash was allowed for withdrawal on a weekly basis.

The corralito caused an immediate backfire on the government. Even more people started trying to withdraw their money from the banks.

Operations using credit cards, debit cards, cheques and other means of payment could be conducted normally, but the lack of cash availability caused numerous problems for the general public and for businesses.

At the time, the average Argentine, as is the case today with the average Nicaraguan, did not employ the banking system for daily uses; many did not have a personal bank account, and dealt only with cash.