Do you think that you have 24/7 access you your money? We are more restricted than you may think. HSBC branches in the UK are putting limits on customer withdrawals. They are also doing this to customers in Hong Kong.
Bank employees there have been telling customers that they first must demonstrate to the bank's satisfaction WHY they want to withdraw their own money. The bank has simply decided in its sole discretion that it won't give people their own money back.
This is positively revolting-- a breach of a most sacred form of trust between a bank and its customers. It would have been unthinkable just 10-years ago. But today it's par for the course.
Banks across most of the 'developed' world have razor thin liquidity and capitalization ratios—meaning that their margins of safety are extremely low.
If just a small percentage of their assets lose value, they could potentially go under. Even if just a small percentage of their customers want their deposits back, they won’t be able to honor the requests.
This is ultimately what’s happening to HSBC. It turns out their UK operations are in severe financial trouble, posting a major capital shortfall of over $100 billion.
This should come as no surprise. Less than a year ago, in response to how poorly capitalized British banks were, the banking regulators announced that it would allow banks to use creative accounting to boost their numbers.
In one method that was explicitly condoned by regulators, banks were authorized to count FUTURE earnings (i.e. profit that they may or may not earn in years to come) towards their capital TODAY.
This is tantamount to calculating your net worth based on how much you think you might be earning 20-years from now.
Of course HSBC is not alone. Many banks all across Europe are in a similarly precarious position—little liquidity and thinly capitalized.
There are similar restrictions on cash withdrawals in Italy where the amounts are even much lower.
Think that this cannot happen here? IT ALREADY IS
Banks in the US have recently started imposing restrictions on international wire transfers. Additionally, many customers of Bank of America, Wells Fargo and others are finding that there are “Point of Sale” restrictions on purchases. You may have $10,000 in the bank in cash, but you may be only to withdraw/spend much less than that on a daily basis. You ARE restricted from access to your cash….YOUR CASH!
Paddy Deighan J.D. Ph.D
Comments(5)