John Lyons | March 02, 2009

Article from: The Wall Street Journal

THE collapse of a Venezuelan bank owned by R. Allen Stanford is raising concerns about a run on deposits.

It is feared the run on deposits could threaten the nation's economy and financial system.

Mr Standford, aTexas financier and cricket promoter, has been accused of fraud,

On Saturday, President Hugo Chávez blamed his political enemies for rumours about mass withdrawals, and urged depositors not to pull their savings from domestic banks.

"If there were any reason to do it, I would be the first to act," Mr. Chávez said, in statements distributed by his press office. "I refute these rumours that attempt to sow panic among savers, not just regarding what happened with Stanford, but about the Venezuelan financial and banking systems."

Mr. Chávez moved to restore confidence a day after speculation among brokerage-house trading desks and businessmen that at least one major bank had faced unusually large deposit withdrawals. The speculation is difficult to confirm because it is too recent to be reflected in the latest official bank data.

While Mr. Chávez may succeed in restoring confidence, the concerns underscore the problems facing the 54-year-old, anti-American former soldier, who recently completed a decade in power and last month won a referendum to alter the constitution to permit indefinite re-election.

Mr. Chávez's ability to fund welfare programs and other subsidies at the core of his popularity is undercut by plunging oil prices. Increasingly, residents of Venezuela say they believe Mr. Chávez will have to devalue the "strong bolivar" currency he introduced last year. Price controls meant to contain 30 per cent inflation -- the highest rate in the Americas -- have led to food shortages.

Mr. Chávez has even lost his long-time foil, former U.S. President George W. Bush. In recent days, Mr. Chavez has tried angry tirades against President Barack Obama, who nonetheless remains a popular figure among Venezuelans.

The U.S. fraud allegations against Mr. Stanford are a recent addition to Mr. Chávez's woes. In February, Venezuelan authorities seized Stanford Bank, which is owned by Mr. Stanford, after a U.S. Securities and Exchange Commission lawsuit accused the Texas financier of fraud.

The U.S. lawsuit triggered a run on deposits at the bank -- a small retail operation in Caracas with about 20 branches. The Venezuelan government guaranteed the deposits of Stanford Bank and says it will sell the bank.

Observers say the bank's problems could spread because they revive memories of a mid-1990s banking crisis that wiped out the savings of many in the middle class.