Bank Corralito

A corralito is a restriction decreed by a government that consists in preventing banks from opening their doors to prevent citizens from withdrawing their money at the same time, sinking the financial system .

The main reason why a corralito is decreed, is to prevent a situation of bank panic, in which citizens go to the bank in mass to withdraw all the money from their accounts for fear that it loses value.

Being more precise in its definition, it  consists in applying restrictions on the extraction of money kept in the accounts in the bank , whose objective is to avoid the mass exit of deposits from the system that can lead to bankruptcy of the banking entities.

In situations where this restriction to the extraction of money in a country occurs , it is usually associated with a crisis situation, with huge amounts of debt , times of economic recession and therefore loss of total confidence on the part of citizens in The financial system . Its duration is determined by the time in which citizens regain confidence in banking entities.

Origin of the term corralito in Argentina

The expression corralito comes from Argentina – in 2001 – when people were banned from going to the bank to get their money. The difference with respect to the corralito in other countries, is that at that time in Argentina there were two currencies, the peso and the dollar.

People had bank accounts in both currencies interchangeably. Due to the poor economic management of the successive governments, the rumor spread that the government was going to devalue the peso, and as a consequence people who had accounts in pesos would lose part of their value, not in dollar accounts because the Dollar value was determined in the United States.

Due to this situation, the panic caused people to get their money to buy dollars (banks in this situation would be left without dollar reserves, because if many customers go to the bank to buy dollars the bank must sell them). The government prevented people from taking money from banks, both in pesos and dollars for a year.

Finally, the government transformed all accounts from dollars to pesos and devalued the peso, expropriating the citizens’ money by taking away the dollars and returning the money in devalued pesos.

Partial Corralito in Cyprus

There are other corrals recently lived as the case of Cyprus in 2013 , known as the first partial yard in the European Union.

Cyprus, officially the Republic of Cyprus, is a member state of the European Union located on the island of the same name. His economic situation was very delicate and he needed a bailout by the European Union at all costs. For this, the Eurogroup was required to establish taxes on deposits to contribute to the financial rescue, established at 6.75 percent for all those who had deposits below 100,000 euros. This was 9.9 percent for amounts above 100,000 euros.

Finally, the aid package – financial rescue – for the Mediterranean island was 10,000 million euros after applying the aforementioned measures.

Corralito in Greece

The corralito in Greece occurred in the midst of a debt crisis in Europe during 2015. It was preceded by the rejection of the European Central Bank (ECB)  to extend the deadline for the return of the Greek bailout and not to increase the emergency liquidity line.

These were the main characteristics of the rescue:

  1. Close the banks for a week.
  2. A maximum withdrawal of 60 euros per day from ATMs was established, by card and day. Really low amount, in the farmyard of Cyprus the maximum amount was € 300 per day.
  3. Purchases with card: Payments can be made without monetary limit within the country.
  4. Bank transactions between Hellenic entities may be made without restriction. As for foreigners, the permit management will be regulated by the General Accounting Office for some companies of essential products such as the purchase of medicines.
  5. Online transactions are allowed throughout the country, most of them without limit, but no money transfers can be made abroad.

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