Some Hard Numbers On The Western Banking System

Tyler Durden's picture

Submitted by Simon Black via Sovereign Man blog,

At our Offshore Tactics Workshop in Santiago three months ago, Jim Rickards (author of the acclaimed Currency Wars) told the audience of roughly 500 people– (paraphrased)

‘If one of you stands up right now and heads for the exit, the rest of the audience probably won’t pay much attention. If ten of you do it, one or two people may notice and follow. But if 400 of you suddenly head for the exit, the rest of the audience would probably follow quickly.’

It’s a great metaphor for how our financial system works. The entire system is based on confidence. And as long as most people maintain this confidence, everything is fine.

But as soon as a critical mass of people loses confidence in the system, then it starts a chain reaction. More people start heading for the exit. Which triggers even more people heading for the exit.

This is the model right now across the system. And it’s especially pervasive in the banking system.

Modern banking is based on this ridiculous notion that banks don’t actually have to hang on to their customers’ funds.

Banks in the United States typically hold less than 10%, and even less than 5%, of their customers’ savings. This is particularly true among smaller regional banks.

As an example, BB&T bank is holding about $3.2 billion in cash equivalents on $131 billion in customer deposits. That’s a ratio of just 2.4%.

The rest of customer deposits are mostly invested in residential mortgage backed securities (similar to those which collapsed in 2008) and commercial loans. In fact, the bank’s loan portfolio exceeds total customer deposits. Not exactly the picture of financial health.

In the UK, the situation has become so absurd that British regulators are allowing some banks (Lloyds, Royal Bank of Scotland) to plug their gaping capital deficits with FUTURE earnings.

Now, I’m not trying to badmouth any particular bank here; these example are representative of the entire western financial system.

Yet few people give much thought to where they park their hard-earned savings. We’re deluded into believing that our bank is safe. It must be, after all. It’s a bank! And… it’s backed by the government!

Sure, never mind that the balance sheets of insurance funds and sovereign governments are in even worse shape.

That this system is still functioning at all is due almost entirely to confidence. There is no fundamental support propping it up. And a system built exclusively on confidence can unravel quickly.

This is why it’s so important to give a lot of thought to your financial partner. Do they have a fundamentally safe balance sheet? Or is it just smoke and mirrors?

Take a look at your own bank’s balance sheet. How much cash do they hold as a percentage of deposits? How big is the loan portfolio as a percentage of deposits? How much equity does the bank have as a percentage of deposits?

If you’re not satisfied, find another bank. And you may have to look overseas at stronger jurisdictions.

Singapore is one place where I’m happy to park capital. OCBC for example, holds a whopping 38% of customer deposits in cash equivalents… ten times as much as many banks in the West.

Its total loan portfolio is far less than customer deposits. Total equity exceeds assets by a margin of 2:1. And it resides in a nation with effectively no net debt.

I’m not necessarily endorsing OCBC, but rather citing it as an example of what a healthy bank balance sheet is supposed to look like. Many banks in Singapore hold similar figures.

Bottom line, it matters where you hold your savings. Balance sheet fundamentals are critical.

And moving your hard-earned savings to a well-capitalized, highly liquid bank is one of those things that makes sense, no matter what.

If nothing happens, you won’t be worse off for it. Yet if the confidence game collapses, you’ll be one of the few left standing with your savings intact.

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Flakmeister's picture

I didn't see Sealey on the list of financial institutions....

Richard III's picture

I would not put a farthing in any 'bank' ( so-called ) in Santiago, Chile, or in any other so-called 'financial institution' domeciled in these profligate Third World banana republics: Argentina, Panama, Uruguay, Los Estados Unidos Americanos, &c.

Stackers's picture

I remember reading a study that showed the critical threshold to instigate a panic is like 11-12% of a crowd to start moving

max2205's picture

But I just read 75% of amerikans only have $800 or a lot less in savings....

francis_sawyer's picture

Simon Black has 16 'Rochefocauld's'... They're worth $50 bucks each in Philly...

CrazyCooter's picture

Since there wasn't really any resources provided to actually *QUANTIFY* said quality bank for us little guys, I figured I would share a resource.



SoundMoney45's picture

Using the "Cyprus Template", all accounts at all banks in a given geographical region are treated identically, regardless of a given bank's balance sheet.  

TruthInSunshine's picture

Is Japan a "western" banking system?

I only ask because Kuroda-san appears to be absolutely serious about fast tracking the implosion of Japan's economy through monetary seppeku.

Nikkei is getting a pop of the Kuroda-san MOAR debaser strategy, but the night is young, the VIX has been hot-hot-hot, and Mrs. Wantanabe's husband is day trading for a living.

Who doesn't love a ginormous, open & obvious Ponzi scheme? They always end well.


p.s. The Wall Street Journal's Head Honcho Editor was out with a very public statement today claiming the market misread Bernank's statement and took it to be hawkish when it was really dovish. In other words, he repeated the Hilsenfail Narrative.

Umh's picture

I read a while ago that about 24% of US citizens have a negative net worth. The flip side of that is that 76% would have a positive net worth. Without having more detailed information I would say that you are incorrect.

It sounds like the average net worth of US citizens may be $800. I do not think that 75% have $800 dollars. In my own experience once someone becomes debt free their net worth climbs significantly.

xtop23's picture

Is it Singapore that is the country where if a banker violates the confidence tangibly of his depositors he can be publically caned?

Sounds like a pretty damn good recipe for banking honesty to me.

On a side note, the 20 something Asian girl with full C's under the banner, on the left side of the home page gave me happy pants.

So thanks for that.

And yes, I know they're occasionally geared toward the possible tastes of the one browsing.

edit; Maybe I should thank myself, lol.



Chaffinch's picture

Here's a number which might turn out to be a hard number:

156,000 ounces gold allegedly left the Comex vaults yesterday, taking their stock down to a touch over 7.5 million ounces.

At that daily withdrawal rate it would take just 48 days to clear them out completely.

It sounds a lot, but that would be less than one ounce per head for a big city...

Flakmeister's picture

And how much gold do you think was recouped in the "Cash For Gold" scam in the past month? It is all about marginal demand. 

And while your point is interesting, remind us all if COMEX is cash settlement, or even better (worse?!) settlement in shares of GLD is allowed...

Almost Solvent's picture

Whoa - your bitch likes it wild in Montreal 

The Master's picture

Hmmm...... if only there was some other way to store my hard-earned wealth outside of the corrupt, grossly under-capitalized banking system.....

RaceToTheBottom's picture

Mattresses, Guarded by a big mean dog and a few handguns.  Yes pick a smart dog.


Theta_Burn's picture

In Cypress they just locked the banks down and allowed a couple hundred dollars a day to the pogues, for food and water....and most seemed grateful for their "allowance"

I'd like to think that here in the USSA at least 1 or 2 buildings would catch fire, and at least 1 or 2 people responsible for the coming disaster would get a good talking to...

CONfidence in what?


Peter Pan's picture

Time for a true story as I heard it from a diplomat.....

I was once invited to be one of the guest speakers at a seminar. The first, second and third speakers gave their talks and then it was my turn. I got up and started speaking. About a minute later someone at the back got up and left and then two people from the middle. A minute later some more people from the front and the number leaving kept growing. I did not lose my composure and kept speaking despite the fact that more and more left. I kept going but more and more people left until they were all gone except for one man in the front row. I was dtermined to finish. However curiousity eventually got the better of me and I stepped down and went up to the man.

Excuse me I said, but everyone else has left, so why are you still here?

He looked at me for a moment, then looked back. He then looked at me again and said, "I am the next speaker."

Atomizer's picture

Money Confiscation  <<<----Worth the watch, educate yourself

XitSam's picture

tl;dr blah gold blah overseas banks blah chile blah

lotsoffun's picture

it all sounds well and good - your nice bank with 38% 'cash' deposits.  might those be USA treasurys?  and what happens/happened to the 'safe' money market funds when the price of those treasurys dropped??


disabledvet's picture

the interest rate rose when those treasuries dropped.

Ban KKiller's picture

My chickens use bank notes for litter.

alien-IQ's picture

Half the people in this country have less than $800 in their savings accounts...IF they have a savings account at all. The "liquidity" of their banks balance sheets is, rightly, of no fucking concern to them.

ebworthen's picture

Hard numbers?  Is that like mark to reality accounting and the rule-of-law that have gone missing in markets?

But seriously, all U.S. Depositors should be aware that when asked directly - TWICE - about the Cyprus bail-in's (confiscation of depositor savings or the "stability levy), Bernanke did not say it wouldn't happen in the U.S. and condoned the deposit confiscation.

RaceToTheBottom's picture

Which really means that he is concerned how he is going to guarantee the deposits that he has committed to.  He is telling us that those are at risk, while the amounts in excess of the guaranteed amounts should not be expected to survive....


Pancho Villa's picture

The Germans are supposedly pushing for an 8% forcible bail-in by depositors when a bank fails. (Sorry I don't have the link, but the article was in German anyway.)

That is a prescription for widespread bank runs. On any rumor of weakness, everyone will rush to pull their money from the bank ahead of the 8% bail-in. And Europe has no shortage of weak banks.

SAT 800's picture

That's very interesting. For sure Europe has no shortage of weak banks; they have Banks that make B of A look like a responsible institution; and that's not easy.

involuntarilybirthed's picture

So we find the perfect place to store our money, then we die anyway?  "on a long enough timeline...............................".   At some point, before the point on the "timeline" we should spend it before giving it to the gov so you can crap in a bed pan with assistance. Have we been conditioned to save until we die?  Spend it on living, not dying.

CaptainSpaulding's picture

Best reply i read all day. A big green cigar for you.

johny2's picture

debt money and exponential growth economy was one step too far, and it will take a lot of luck for this to be solved in a good way.

BalanceOrBust's picture

In a true credit collapse, where there is demand for dollars to pay down debts, all assets drop (because they were propped up by borrowed dollars piled on borrrowed dollars). The exception oddly is the dollars which are needed to pay down debts.

Can you spot the logical flaw?

tony bonn's picture

"...BB&T bank...."

is a big an asshole as bank of america....2 banks i despise with great ardor....

RaceToTheBottom's picture

How the banking system works, known from Popeye:

I would gladly pay you back Tuesday for a burger loaned today....

Augustus's picture

It is impossible for any banking customer to evaluate the bank's balance sheet.  If the auditors and regulators cannot do it with the inside info, how can any average customer?  The behemoths should be broken up.

John_Coltrane's picture

There's two relevent questions that any banking customer can easily answer using a site such as bankrate.  Do all the originated bank loans stay with the bank or are they securitized (unloaded to the greater fool)?  If all are held as assets which ensures real loan standards, proceed to question two.  Question 2:  What is the current % of non-performing loans, NPL, held by the bank and what was it during the 2008-2009 period?  For my credit union, the answer is less than 1%, even during the 2008-2009 collapse.  Perhaps, the requirement of a real job and 20% down on all RE loans was the explanation.   FDIC insurance is no excuse for failure to perform DD since, as the article correctly states:  its all about CONfidence and trust.

PT's picture

How to stop the banksters from stealing your money:

1.  Don't work so hard.  Then you won't have any money.  Then they can't steal any.  Ha!  Let's see 'em get out of that one!

2.  Ride dirt bikes really fast.  Have a bad accident.  Become a quadriplegic.  Double ha!  Now they can't make you work hard to pay any money back.  (Also, abuse your body with bad drugs so they can't sell your body parts.)

3.  Borrow a bucket load of money.  Spend it on learning how to do really cool stuff, like flying fighter jets and popping wheelies on expensive sport bikes.  Make sure you borrow really large bucket loads of loot and learn how to do really, really cool stuff.  If you borrow enough money before they notice, the only way you will be able to pay them back is by doing what you are good at - really cool stuff.

You're welcome.  Wake me if you need any more valuable information.

Reader1's picture

Dude!  Then, when they come for their money, you can ramp over them!  Pop a wheelie for justice!