Can a multi - millionaire organize a bank-run without breaking any laws while shorting the stock of the bank ?

A friend of mine sent this Reddit post to me a few weeks ago. It's quite interesting and could be considered a good idea. Obviously, it wouldn't be possible to organize something like this when you have less than $1m in your bank account, but I feel like a billionaire or even a multi-millionaire ($100M+) can make my plan work.

This is the original post;

Is it illegal to keep withdrawing money from a bank account deposit it at a different bank, transfer it back over and withdrawing it again to cause a bank run to short a stock?
 

I just found out a local shitty bank is a publicly traded stock with a 2 billion dollar market cap. And I’d like to short it.

My plan is to withdraw cash like 100$ from them and deposit it with a different bank then transfer it back to them and withdraw the same 100 $ until they run out of physical cash. I would then go around and let people know that when I tired withdrawing money from them that there was no cash to withdraw.

This in turn should cause a bank run and I’m assuming a decent amount of people would close their accounts leading for the stock price to fall.

Puts are extremely cheap and I would love for this bank to go out of business or lose public trust.

HAs anybody tried this method before? Are there any REAL downsides?

This plan has some flaws, so I will share mine.

I think you would need more than 10-15 people with more than $100M+ in total to do something like this. They would deposit their money to the bank's branches in big cities from a year ago with multiple accounts. I assume, when you deposit a big amount of money to a small bank, they would transfer it to a local reserve or something like that, so even the big branches of the bank wouldn't hold this money.

A year after, as your team start withdrawing their money from the branches of the bank in small cities, where the banks have a very low amount of physical cash, the branches of the bank in small cities would start to run out of money. Then, you can inform local and national newspapers about this situation, and pay some Twitter accounts to make news about it, along with other social media creators/newspapers. As the people who use this bank go and try to withdraw their money in these cities, they would face the harsh truth and be very panicked. They would start complaining online, and probably start a hashtag on Twitter. You can support this hashtag by buying bot accounts to make it seen by everyone. All of this would happen in a matter of hours. As more news comes out, the management and the investors of the bank would start to shit in their pants. They would request physical cash from the local reserves and probably transfer some of the money from big branches to small branches. Then, your team would start to withdraw the rest of their money from the big branches of the bank. And as more news come out, even the people that are in big cities would start to try to withdraw their money, but wouldn't be able to, they would start to lose their minds and complain everywhere, this would cause misinformation and more panic. Everyone would start to assume that the bank will go bankrupt. Small investors and big firms would start to short the stock of the bank, and even big investors of the bank may sell their stocks. This may really end with the bankruptcy of the bank, but at the end of the day, you and your team would make the biggest profit.

I feel like my plan would work perfectly, but I'm just a student who is interested in finance so... What are your thoughts?

23 Comments
 

Why? We will not spread misinformation, encourage anyone to short it, or manipulate anyone. Just me and a couple of my friends will decide to withdraw our money after not liking the services of the bank. What's the exact crime here?

 

Would love to watch this play out

"If you don't have any enemies in life you have never stood up for anything" - Winston Churchill | "It's a testament to the sheer belligerence of the profession that people would rather argue about the 'risk-adjusted returns' of using inferior tooth cleaning methods." - kellycriterion
 
PrivateTechquity 🚀GME🚀

Would love to watch this play out

My boy Big Juice and I could hang out near the bank and roll Muppets out of their bankroll.

 

Never Happened

"If you always put limits on everything you do, physical or anything else, it will spread into your work and into your life. There are no limits. There are only plateaus, and you must not stay there, you must go beyond them." - Bruce Lee
 

That was the original plan on that Reddit post.

But, in my plan, you don't cycle the money in and out, just deposit it a year before you start withdrawing all of it. Because banks don't hold big amounts of physical cash, and because you're going to do this with a small-sized bank in small cities, it makes it impossible for the bank to replace all physical cash quickly without affecting other customers. As more customers won't be able to withdraw their money, those who hear the rumors will try to withdraw too and this will cause a chain reaction for all of the other branches of the bank. Which will cause people to lose trust in the bank, and short its stock.

 

All banks have either direct FED window access or regional collective FED window access.  Not to even mention interbank overnight lending.  

 

No, quite simply people do not care.  This requires a populace that actually cares.  You do know that the banking reserve requirement was set at 0, right?  You need large populations to make this work.  A single individual, even a billionaire, couldn't do this to a small bank.  What you have to realize is that the system of bank interchange lending is set up so that is essentially impossible.  The money has to land somewhere, if you pull it out of one bank and deposit into another you are essentially freeing up that capital to be lent to the institution to which you just pulled it out of.  Also, clearing happens overnight so its not like a bank wouldn't have time to originate gap funding.

Regardless of all of this, the FDIC makes this all but an exercise in thought.  The average person simply does not care about the solvency of their bank.

 
Most Helpful

I have had the need to obtain large amounts of cash in continuous cycles before (don't ask). Most banks are fairly nice about it, they will simply ask you to give them 24-hour notice so that they can have a special cash delivery brought to the branch. Yes, they will a file a CTR for you, but that's not an immediate flag for money-laundering, it's just a treasury requirement and a relatively large number are filed on a daily basis all across the country. If you didn't have a history with the bank they might file an SAR and that's a whole other ball of wax, but in your plan you would already have a relationship with them so there's little risk there. 

Regardless, I think your plan is silly. A bank keeps low cash to minimize their exposure to theft. But with the right notice, they are willing to have ready whatever cash you need. In the other parts of your plan, what's to stop them from going on social media and inviting people to the branch? They'll probably set up one of those casino displays where you can get your picture taken with $1 million dollars :)

 

If anyone would have read the terms and conditions of their bank agreement, they would see the bank does not need to give cash upon request and can provide a cashiers check in lieu of cash.  There is nothing wrong with desiring $100k in cash, but the bank requires time to get the funds on hand.  If everyone wanted cash at once, the bank could fulfill the requests given a few days time.  No run.  No decrease in stock price.

 

Never Happened

"If you always put limits on everything you do, physical or anything else, it will spread into your work and into your life. There are no limits. There are only plateaus, and you must not stay there, you must go beyond them." - Bruce Lee
 

This sounds really dumb. Just because they don’t have cash on hand doesn’t mean that they are insolvent. 

"If you always put limits on everything you do, physical or anything else, it will spread into your work and into your life. There are no limits. There are only plateaus, and you must not stay there, you must go beyond them." - Bruce Lee
 

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