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Does Your Money in the Bank Really Exist?
By admin | February 21, 2008
Does your money in the bank really exist?
Deposits in banks in major countries, like the USA and UK, are generally regarded as safe. But are they? As the US sub-prime problems seem to be turning into a global banking crisis, Peter Macfarlane investigates.
I’m a banking consultant, not an economist. I don’t normally get involved in conspiracy theories. But when I see regular bank customers in major American and British institutions facing restrictions and unnecessary delays when withdrawing $2,000, I fear that something is amiss.
As I said, I’m not an economist. But my understanding is that everybody benefits from velocity of money in circulation. The quicker people get their money, the quicker they spend it, and the whole economy benefits.
So new policies put into place in the last few months to reduce the velocity of withdrawals suggest that the whole fiat-based banking system is much more fragile than the powers-that-be would have us believe. Increasing desperation on the part of banks? We shall see.
News of a major US bank putting in place limits on wire transfers in and out, and the first run on a bank in the UK in more than a hundred years, recently encouraged me to investigate this a little more, on behalf of my clients.
Anecdotes of banks trying to avoid paying out withdrawals have become increasingly common in recent times. Before paying out significant withdrawals, banks are increasingly asking for documentation about the purpose of the transfer such as copies of contracts, invoices etc. Even if you do have such documents to hand, the result is usually that the bank has a day or two longer to play with your money while they investigate. If you don’t, it could take weeks.
Of course, all this is done in the name of preventing money laundering. If the banks find money that might be tainted, they are generally delighted to “freeze” the account and ask for a mountain of paperwork which is almost impossible to provide.
But the change we’ve seen in the last few months is banks putting specific policies in place to delay paying out withdrawals to millions of small account holders. Money laundering doesn’t work as an excuse in these cases, so “online safety” is being wheeled out instead. Some are suggesting that this more systematic approach to stopping people getting at their money is a sign of further weaknesses in the system.
Here are some concrete examples of what I’m talking about:
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An investigation by the Guardian newspaper revealed an extraordinary move back in time to paper cheques by Abbey National, part of the Spanish Santander group (slogan: “The Value of Ideas”). Whereas withdrawals from Abbey’s savings accounts used to be permitted by bank-to-bank transfer or by picking up a cheque in any convenient branch, in the name of “security and fraud policies”, the only way they now allow withdrawals is a cheque – sent by second class post which, for a few pennies less, takes 3-5 days longer than first class. APACS (the banking industry’s association for payments, of which Abbey is a member) called the move “bonkers” and “barking mad”, as general policy is to discourage use of cheques and encourage electronic transfers which are much safer and more efficient (in other words, people get their money quicker!) The Guardian investigation told the story of a customer infuriated at having to wait well over a week for his $100,000 withdrawal to arrive by second class post, then having to wait a few more days for his cheque to clear after that.
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Gold guru Jim Sinclair (http://www.jsmineset.com/) recently drew my attention to new limits placed by Citibank on their account holders transferring funds between their own accounts in other banks:
https://web.da-us.citibank.com/tandcFiles/printable_cashedge.htm
Next Day. Funds are credited to your account on the next Business Day, if I request the transfer by 3:00 p.m. ET on a Business Day. This type of request is subject to the following conditions:
(1) in order to request an INCOMING Next Day Transfer: (a) the available balance in my Eligible Citibank Account must be at least $500; and (b) I have successfully completed an incoming standard transfer from the same Verified Account in an amount of at least $500 at least 20 calendar days prior to requesting the Next Day Transfer.
(2) in order to request an OUTGOING Next Day Transfer, the available balance in my Eligible Citibank Account must exceed the amount of the requested transfer by at least $500.
Limits on IIT Transfers
Type of Limit Standard Transfers Next Day Transfers
Incoming
Standard Transfers Daily $100,000, Next Day Transfers Daily $1,000
Standard Transfers Monthly $100,000, Next Day Transfers Monthly, $2,500
Outgoing
Standard Transfers Daily $2,000, Next Day Transfers Daily $1,000
Standard Transfers Monthly $10,000, Next Day Transfers Monthly, $2,500
While clearly this is part of a user agreement for a specific type of account and should be read in context, is it a sign of things to come? As Jim says, “The funds, when confirmed as received, are immediately good money. This clearly restricts such transfers in my opinion.” As he goes on to point out, “If you have $1,000,000 in such an account and such an agreement governs it, it would take you 100 months to withdraw the funds.”
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Other, smaller, US banks also have such limits in place. One is California-based Tomato Bank, which specialises in bank accounts for non-US residents that want access to services such as Paypal. (They find it hard to get bank accounts in the US at all these days, so they are obviously regarded as fair game for all kinds of extra limits and regulations.) Their current account for aliens has a limit on outgoing wire transfers as follows: “Up to $1,500.00 per transfer with a total $10,000 per month in outgoing wire transfers.” If, in exceptional circumstances, they allow account holders to withdraw more of their money, the charge is: “Wire Transfer fee OVER $1,500.00 (see note below) $45.00 +2.5%”. Source: https://www.accentbanking.com/fees-and-limits.html
Just a few years ago nobody would have thought about accounts having limits on wire transfers as part of the terms and conditions. Now, it is becoming increasingly the norm.
Perhaps not coincidentally, all this comes soon after the run on Northern Rock, a bank in the UK which was apparently overly exposed to short-term, money-market financing, and had to be bailed out by the British government.
The Northern Rock case was the first run on a British bank in 140 years. Queues outside Northern Rock branches stretched around blocks and, according to the tabloid press, police were called to intervene in Golders Green, North London, after vicious handbag attacks by elderly ladies grappling for better positions in the queue.
The money leaving Northern Rock in cash, however, was insignificant in the grander scheme of things. What has bankers really scared was the online bank run.
Apparently a bailout from the Bank of England was necessary late on the afternoon of Thursday, September 13th and news somehow reached the internet. By the time Northern Rock branches opened and people awoke to the news reports on the mainstream breakfast news on the Friday morning, almost £350 million pounds ($700 million US dollars) had already been withdrawn via online banking. Around then, the servers hosting the online banking mysteriously crashed.
So, let’s ask ourselves, for whose security are these new withdrawal policies, and who might be committing fraud?
Be prepared to see more of this in future. The only obvious solution is to diversify as much as possible. Keep your money in different currencies, in different banks, in different countries!
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