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What benefit is there to shutting down the banks in Greece? It seems that this would do more harm than good. Won't this impede economic growth by not allowing companies and startups access to capital? This, I believe, would cause the crisis to last longer or get worse.

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The deposits that people have in the banks is a lot more than the money that the banks actually have. This is due to fractional reserve banking.

As a consequence, if everybody tries to take out their money, the banks will run out of cash: the banks themselves will be unable to meet their financial obligations, and go bankrupt.

When the bank goes bankrupt, people lose their deposits. Normally the government guarantees the deposits, but in the case of Greece the government is running out of money as well, so it will not be able to meet this guarantee.

That's why there are closed banks and capital controls (i.e. at most €60/day withdrawal and other limits). It's intended to be temporary. Right now there is a lot of unclarity what will happen. When there is more clarity the banks will surely open again.

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  • $\begingroup$ So people are scared and trying to withdraw their money to put it into a bank which they would believe would be more secure (Not at risk of going bankrupt)? If this were to happen on a massive scale the bank would foreclose and the financial loss would be great for the country. Correct? $\endgroup$ – Tolure Jun 29 '15 at 13:21
  • $\begingroup$ @Tolure Yes, although I'd speculate that ordinary Greeks (i.e. those without foreign bank accounts) would keep the money as cash. No matter what happens to Greece, having cash euros will still be valuable. $\endgroup$ – gerrit Jun 29 '15 at 13:38
  • $\begingroup$ @Tolure people are withdrawing Euro to prevent those Euro being converted to a new Drachma which would then instantly devalue their savings. If the money is held in a Greek bank, it can be forcibly converted. If it's held as cash under the bed, then that's a lot harder. $\endgroup$ – EnergyNumbers Jun 29 '15 at 17:10
  • $\begingroup$ Typically this kind of bank holiday is a prelude to some form of major currency change - so it wouldn't surprise me if that's what is actually taking place at the moment. For example, the Roosevelt administration mandated an 8 day bank holiday in 1933 to take the US off the gold standard. There's some fairly involved logistics that have to go on behind the scenes. $\endgroup$ – Lumi Jul 1 '15 at 23:51
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    $\begingroup$ Re: "Normally the government guarantees the deposits, but in the case of Greece the government is running out of money" - normally a government can print its own currency to fulfil its guarantee - but Greece is in the eurozone which means it cannot do this. $\endgroup$ – Mick Jul 3 '15 at 13:46

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