Would You Keep Your Money in a Bank Knowing This?
by C Serpa, Grams Gold Keeping your money in a bank is a high-risk situation. Would you give your money to a hedge fund that is 9x leveraged? For every $100 you deposit in the bank $90 is subsequently loaned on. Could zero/negative interest rates be the end of the fractional banking system and force deposit holders into gold and silver? US Federal Reserve sets a Required Reserve Ratio of 10%, but applies this only to deposits by individuals! Banks have no reserve requirement at all for deposits by companies! The Required Reserve Ratio of 10% means that only a fraction or $10 of the $100 you have deposited at the bank is available for cash withdrawals.
You have to ask yourself when interest rates are so low and don’t compensate you for inflation and with the risk that there could be bail-ins, considering the incredible derivative positions banks have, why keep your money at the bank? At the most the bank is likely to have only 10% of your money in cash. The FDIC has only about $25 billion in its deposit insurance fund, which is mandated by law to keep a balance equivalent to only 1.15% of insured deposits.
Your $90 that is loaned on is leveraged within the banking system to increase profits for the bank. A bank is basically a big 9x leveraged hedge fund. Excessive leverage by the banks was one of the main causes of the Great Depression and of the 2008 financial crisis. Under normal circumstance and normal debt levels the fractional banking system works, though these are not ordinary times! All Governments have silently built in the “bail in” template for when the roof comes down. Where is the accountability of the politicians and bankers? The US, UK, EU, and Canada have recently all built the new “bail in” template into their laws in order to avoid imposing risk on “taxpayers” (and politicians and bankers of course). All taxpayers have bank accounts and therefore the avoidance argument basically is only important to get the government officials and the bankers off the hook – i.e. their accountability! Under the new “template” all lenders (including depositors) to the bank can be forced to “bail in” their respective banks. Most depositors naively assume that their deposits are 100% safe in their banks and trust them to safeguard their savings.
And most account holders don’t know that by law, when you put your money into a bank account, your money becomes the property of the bank. Deposit insurance is a fallacy with more than $1,000 trillion in derivatives.
Your title “downgrades” from owner of your money to creditor of your money with millions of other creditors. You become an unsecured creditor with a claim against the bank. In other words if the bank goes bankrupt you share at pari (equally at fault) with other similar creditor/deposit holders. Great deal for the bank and bankers! Before the Federal Deposit Insurance Corporation (FDIC) was instituted in 1934, U.S. depositors routinely lost their money when banks went bankrupt. These days your deposits are “protected” only up to the $250,000 insurance limit, and “only to the extent that the FDIC has the money to cover deposit claims or can come up with it”. The question then is how secure is the FDIC? The FDIC has only about $25 billion in its deposit insurance fund, which is mandated by law to keep a balance equivalent to only 1.15% of insured deposits. See here, based on data reported on 2014-09-30, just the 5 largest US banks by total deposits amounting to roughly $4.8 trillion. Continue Reading>>>