> Posted by Jeffrey Riecke, Communications Assistant, CFI
Accessible savings services make countries more resilient during times of financial crisis, a new report from Rui Han and Martin Melecky of the World Bank finds. It’s been established that access to savings leads to increased financial stability at the individual and household level, but this report is the first empirical evidence of this relationship at the financial systems scale.
As the current banking crisis in Cyprus reminds us, during times of financial uncertainty and crisis, the potent threat of widespread bank withdrawals (bank runs) emerges. In 2009, the volume of global deposits shrank by about 12 percent in a ratio compared to GDP.
The report investigated the effect of bank deposit service accessibility on the stability of bank funds in 113 countries during the 2008 global financial crisis. It found that a 10 percent increase in savings service accessibility mitigates a country’s deposit withdrawal rates by about 4 percent, with this link spanning nations of all income levels and strongest in middle income countries. One reason for this increased readiness of clients in middle income countries to withdraw funds is low familiarity and trust of banks.
To read the full report, click here.
Image Credit: IADB
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