MUNICH -- The clients want their money, and they want it in cash. Whether it's because they need it to get by, or because they fear the drachma will return, many Greeks are pulling their money out of their banks. The hemorrhage is so big it threatens to sink some banks altogether.

The situation looks critical in other euro zone crisis countries as well. So far, bank customers wanting to withdraw their money haven't suddenly descended on the banks in droves. But in Ireland, Spain and Italy, an invisible – though no less threatening – bank run is ongoing. Statistics from national central banks show that billions of euros are flowing out of Irish, Spanish, Italian and even French banks.

The most flagrant example is Greece. There, since the end of 2009, deposits in commercial banks have dropped 25%, down 60 billion euros to 180 billion euros as of this past October. In Spain and Italy too, business clients in particular are turning away from their banks. "Companies have started withdrawing their funds from banks in Spain, Italy, France and Belgium," says Kinner Lakhani, an analyst at U.S. banking giant Citi.

At the two biggest Spanish banks, BBVA and Santander, deposits by businesses and institutional investors fell by more than 10% in the third quarter alone. Italy‘s Unicredit also lost 10% of its deposits, while rival Intesa suffered a whopping 16% loss. Also affected by lack of client confidence are some French banks, particularly Société Générale, but also market leader BNP Paribas.

For banks, the result has been serious liquidity problems. The drop in deposits is partly to blame, but the bank run is taking place on several other levels as well. Money market funds, struggling with high outflows, are no longer buying short term securities from the banks, and there are no takers for long-term bank bonds. Since the end of June, some 17 billion euros in unsecured European bank bonds have been sold. At the same time last year, that sum was 120 billion euros.

Many European credit institutions have been virtually squeezed out of the interbank market -- bankers are lending very little, whether it be in euros or dollars, to each other. That means the banks' main financial sources have dried up. They are being drip-fed by the European Central Bank (ECB), which is generously keeping them going with short term credits.

Cash flowing northward

Scandinavians banks are the main beneficiaries of banking problems in the so-called PIIGS (Portugal, Ireland, Italy, Greece and Spain) nations. "People are fleeing the euro zone," says Georg Andersen of the Nykredit in Copenhagen. "The northern countries are proving to be more secure ports." A lot of money belonging to businesses, insurers and pension funds is going to Swedish banks like SEB and Swedbank. Investors also perceive Germany's Deutsche Bank and the Dutch bank ING as secure places for their money.

Those who are able to shovel money directly to the European Central Bank (ECB). Some German car manufacturers and Siemens, which have banking licenses, have quietly and secretly put cash reserves with the ECB in Frankfurt, where it is protected from any potential bank failures.

Both banks and governments are in a vicious circle. The worse the debt crisis gets, the more the bonds of highly indebted euro members lose value – and the worse it gets for the banks. Particularly hard hit are institutions like BNP Paribas and Société Générale, but also Commerzbank, which lent PIIGS money. Bad notes from the ratings agency make the situation that much more complicated. One thing is clear: unlike in 2008, the industrial western nations no longer possess the strength to rescue every bank and guarantee client deposits.

Capital flight already has one victim: Dexia Bank collapsed because it couldn't get any money short term. The united action taken by the central banks, including the Fed and the ECB, last week turned on the money faucet – and stokes the suspicion that there may be other banks facing collapse. The more difficult it is for banks to cover their financial requirements, the greater the danger that a large bank fails.

People haven't lost complete confidence in their banks – not even in Greece. But it cannot be excluded that the nightmare of a spiraling run on deposits becomes reality, with clients suddenly turning up in droves saying: "I want my money."

Read the original story in German

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