You might be shocked to learn that “your” money in your bank account is not actually yours. When you place money in a checking, CD, or savings account at the bank, you are actually making an unsecured loan to the bank.
This is equally true in the U.S. as it is Canada, Australia, and Europe. The so-called “international community” implemented the so-called bail-in rule in response to the Great Financial Crisis.
As a reminder, here’s a pic of “the international community.”
If you happen to live in one of these places, and you have one or more bank accounts, this episode is for you.
Here, you will learn that your funds may be subject to bail-in rules, which are a bit vague and promise to not touch your account if it happens to hold less than $250,000 in the US, and 100,000 euros for Europeans. But that’s under the assumption the FDIC (or the European equivalent) will be there to pay it off. Which raises the question of how much the FDIC holds and how it might fare during a particularly bad banking episode.
The answer, with a 1.26% coverage ratio, is “not well.”
Even worse, the Dodd-Frank Act of 2010 elevated derivatives to a senior position in a bankruptcy or restructuring proceeding. Your lowly savings, checking or CD account is pretty much close to last in line for any dribs that might remain. After banks pay off their bets (i.e. “derivatives”) with each other. Because, you know, priorities.
All of which explains why I keep some cash out of the bank. And gold and silver. Also, land, and some cryptocurrency. In other words, hard assets and physical cash.
Because, after all, if you have to scour ever-changing, ultra-complicated rules and still cannot figure out how much of a risk you face, then it’s not a business deal, it’s a gamble. As they say in gambling circles, if you’ve been at the table for 30 minutes and you haven’t figured out who the patsy is, it’s you.