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5. What has caused the run on Greek Banks?
6. Up until a few days ago, what was the ECB (European Central Bank) trying to do to shore up Greek Banks?
it's all based on confidence!=> fiat money (latin it shall be) Why would people run to the bank? because they are scared that greece is going bankrupt so that means that they will loose all their money on greek bank accounts.
why is a run bad? because money needs to be on the bank so they can reinvest it in other assets (multiplicator of money) . If the people take their money away, there is no more investments. u also have to remember that banks lend the money that we give them to others. if a lot of people ask their money back, banks aren't able to cope that. (that's why the ECB oblige the banks to hold a certain amount of money on the central bank's balance. the reserves
what central bank does is lending money to Greece so they could use that money to put the economy back on their tracks. but that means that greece gets a bigger goverment deficit which means that investors are not interested in that because the risk to go bankrupt and to loose all the money that ecb and imf invested is too big. it's a vicious cirkle and there are lots of critics and opinions about it . ( i hope i help u with this . my english is not that correct though)
Thank you.. I already turned in the assignment but ill still give you a metal for helping.