Extended bank closures, such as the current nine-day shutdown in Cyprus, may be an extreme and rare measure, but they are not unheard of as governments seek to keep depositors from making runs on banks while officials sort out shaky financial sectors.
Although central banks are usually in position to bail out failed commercial banks, there are other cases as well where uncertainty can be severe enough to threaten banking systems and force authorities to act.
Here are some examples of government-endorsed bank closures:
- August 1914: Britain declares war on Germany. The announcement is made a day after a Bank Holiday Monday and the government decides to extend the closure until the Friday to avoid panic amid the uncertainty brought on by the news.
- March 1933: US President Franklin D. Roosevelt orders all American banks to close in reaction to the Great Depression. During the week-long closure, the government reviews the banks' financial condition, allowing only those healthy enough to open up for business again on March 13.
To reassure account holders, Roosevelt vows that the Federal Reserve will guarantee any deposits held in the healthy banks. The decision restores client confidence and customers resume depositing money into their accounts.
- August 1998: Russia defaults on its debt and several banks -- victims of a devalued ruble -- are forced into bankruptcy. The government forbids most of the country's banks to authorise withdrawals after account holders make a run on them to secure their savings.
- April 2002: Argentina orders its banks to close to prevent a total economic collapse after the government incurred massive debts linked to the Falklands war and a state takeover of private debts. The banks open again after four days, albeit under a new law that drastically restricts the size of customer withdrawals.
- July 2002: Uruguay suffers spill-over effects from the Argentinian crisis and from growing financial instability in Brazil. Bank account holders fear that Uruguay will not be able to resolve the crisis and withdrawals begin to soar. The government orders a bank closure for five days and deactivates the country's cash machines to curb public panic.