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How and Why Banks Will Seize Deposits During the Next Crisis

Phoenix Capital Research's picture




 

As we noted last week, one of the biggest problems for the Central Banks is actual physical cash.

The financial system is predominantly comprised of digital money. Actual physical Dollars bills and coins only amount to $1.36 trillion. This is only a little over 10% of the $10 trillion sitting in bank accounts. And it’s a tiny fraction of the $20 trillion in stocks, $38 trillion in bonds and $58 trillion in credit instruments floating around the system.

Suffice to say, if a significant percentage of people ever actually moved their money into physical cash, it could very quickly become a systemic problem.

Indeed, this is precisely what caused the 2008 meltdown, when nearly 24% of the assets in Money Market funds were liquidated in the course of four weeks. The ensuing liquidity crush nearly imploded the system.

Because of this, Central Banks and the regulators have declared a War on Cash in an effort to stop people trying to get their money out of the system.

One policy they are considering is to put a carry tax on physical cash meaning that your Dollar bills would gradually depreciate once they were taken out of the bank. Another idea is to do away with actual physical cash completely.

Perhaps the most concerning is the fact that should a “systemically important” financial entity go bust, any deposits above $250,000 located therein could be converted to equity… at which point if the company’s shares, your wealth evaporates.

 

Indeed, the FDIC published a paper proposing precisely this back in December 2012. Below are some excerpts worth your attention.

This paper focuses on the application of “top-down” resolution strategies that involve a single resolution authority applying its powers to the top of a financial group, that is, at the parent company level. The paper discusses how such a top-down strategy could be implemented for a U.S. or a U.K. financial group in a cross-border context…

These strategies have been designed to enable large and complex cross- border firms to be resolved without threatening financial stability and without putting public funds at risk…

An efficient path for returning the sound operations of the G-SIFI to the private sector would be provided by exchanging or converting a sufficient amount of the unsecured debt from the original creditors of the failed company into equity. In the U.S., the new equity would become capital in one or more newly formed operating entities.

…Insured depositors themselves would remain unaffected. Uninsured deposits would be treated in line with other similarly ranked liabilities in the resolution process, with the expectation that they might be written down.

http://www.fdic.gov/about/srac/2012/gsifi.pdf

In other words… any liability at the bank is in danger of being written-down should the bank fail. And guess what? Deposits are considered liabilities according to US Banking Law. In this legal framework, depositors are creditors.

So… if a large bank fails in the US, your deposits at this bank would either be “written-down” (read: disappear) or converted into equity or stock shares in the company. And once they are converted to equity you are a shareholder not a depositor… so you are no longer insured by the FDIC.

So if the bank then fails (meaning its shares fall)… so does your deposit.

Let’s run through this.

Let’s say ABC bank fails in the US. ABC bank is too big for the FDIC to make hold. So…

1)   The FDIC takes over the bank.

2)   The bank’s managers are forced out.

3)   The bank’s debts and liabilities are converted into equity or the bank’s stock. And yes, your deposits are considered a “liability” for the bank.

4)   Whatever happens to the bank’s stock, affects your wealth. If the bank’s stock falls at this point because everyone has figured out the bank is in major trouble… your wealth falls too.

This is precisely what has happened in Spain during the 2012 banking crisis over there. Since then it’s also happened in Cyprus, Greece…and it is now perfectly legal in the US courtesy of a clause in the Dodd-Frank bill.

This is just the start of a much larger strategy of declaring War on Cash.  The goal is to stop people from being able to move their money into physical cash and to keep their wealth in the financial system at all cost.

 

This is just the start of a much larger strategy of declaring War on Cash.  The goal is to stop people from being able to move their money into physical cash and to keep their wealth in the financial system at all costs.

 

Indeed, we've uncovered a secret document outlining how the Fed plans to incinerate savings to force investors away from cash and into riskier assets.

 

We detail this paper and outline three investment strategies you can implement

right now to protect your capital from the Fed's sinister plan in our Special Report

Survive the Fed's War on Cash.

 

We are making 1,000 copies available for FREE the general public.

 

To pick up yours, swing by….

http://www.phoenixcapitalmarketing.com/cash.html

 

Best Regards

Phoenix Capital Research

Our FREE daily eletter: http://gainspainscapital.com/

 

 

 

 

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Wed, 10/07/2015 - 09:07 | 6639097 Common_Cents22
Common_Cents22's picture

this stuff only guarantees that more and more people will spread their money out to more banks to keep under any limits.

 

i hope it breeds more local decentralized competition in banking institutions.

 

CEDARS does that as a service, all your statements in one spot, but you will get dinged a little on your interest rate(but who cares about return ON money, over return OF money at this point?)

Wed, 10/07/2015 - 09:00 | 6639062 ramgold2206
ramgold2206's picture

Worryingly there is a surprising amount of childish comments on this article. Yes there is a policy of removing cash from the system but it's to do with taxation and control. And to try combat activities of drug dealers and money launderers etc.  However everyone will suffer with the implementation of the policy as cash (which is a means of payment for labour hours) is withdrawn from circulation and we move to electronic payment system that is totally traceable . One simple solution is to steadily accumulate tradable gold bullion in small weights, store it safely outside of the institutes and use it 1. a safe store of wealth hedging against inflation, 2. if need occurs, because its in small tradable weights it can be used to pay for solving such need.  

the guns and ammo and canned food are somewhat dramatic for Ireland, but considering what I see on the MSM news perhaps a vital element in your survival pack in the US.

Contact me if you want to understand how to acquire our bullion at the cheapest $ amount.. Dont dismiss it until you have all the facts.

www.teamramgold.com/about-us

Sat, 10/10/2015 - 10:30 | 6652364 duck dodgers
duck dodgers's picture

what are you gonna do with your gold when it gets banned?

Wed, 10/07/2015 - 07:58 | 6638918 arrowrod
arrowrod's picture

Are government employees exempt from deposit theft?  You know, the ones with guns?

Wed, 10/07/2015 - 02:15 | 6638625 Phoenix901210
Phoenix901210's picture

And if you live in the EU it's called the 'Bank Resolution Recovery Directive'.

Wed, 10/07/2015 - 00:45 | 6638544 joego1
joego1's picture

Sounds delightful.

Tue, 10/06/2015 - 23:46 | 6638482 nnnnnn
nnnnnn's picture

convert emty paper to gold and hide somewhere deep in the woods as long as you can

Tue, 10/06/2015 - 23:36 | 6638461 Dr_Snooz
Dr_Snooz's picture

We all need to be working on developing our local economies, a flourishing, off-the-grid gray market and alternative currencies.

Tue, 10/06/2015 - 23:37 | 6638440 Dr_Snooz
Dr_Snooz's picture

Dupe.

Tue, 10/06/2015 - 21:30 | 6638182 RBW
RBW's picture

Caye Bank appears to have gone broke. I have been trying to have funds from two accounts that I have returned for almost a monh. I have been given every excuse i the world as to why they can't sendthe funds back to me. MY FUNDS! Last week it was no paer checks. Tonight Caye sent out a generic e-mail saying they can no longer send wires (either) and that they will honor customer requests (in person) for max of $10K per day with two days notice!!!

I think my funds (over $34K USD) will never be seen again. Spread the word:Caye Bank is full of CROOKS!

 

Here is their e-mail from tonight...

 

Dear Valued Customer:

Caye International Bank regrets to inform its customers of a temporary suspension of our wire transfer services due to a loss of correspondent relationship.  We were advised earlier today that our outgoing wire payments will no longer be able to be facilitated via Heritage International Bank, thus the reason for the short notice.    

 

We are able to facilitate internal transfers and check deposits.  For our customers in Belize, cash deposits and cash withdrawals can be accommodated.  Per Bank policy, a maximum of $10,000 USD cash deposit/withdrawal per account holder can be accommodated with at least 2 business days’ notice.

 

We continue our earnest efforts to finalize the establishment of new correspondent bank relationships so we can efficiently service all our customers’ needs. 

 

Please accept our apologies for the inconvenience caused.  We hope to restore wire transfer services as soon as possible.  Should you require further clarification, please feel free to call or email your bank officer.

 

Thank you for your understanding. 

Sincerely,

 

 

Management

Caye International Bank, Ltd.

Wed, 10/07/2015 - 09:12 | 6639125 Common_Cents22
Common_Cents22's picture

get off your ass and get to belize.

Tue, 10/06/2015 - 22:27 | 6638330 kenny500c
kenny500c's picture

I would go there in person and get what you can while you can.

Tue, 10/06/2015 - 17:38 | 6637160 RMolineaux
RMolineaux's picture

This item condradicts itself in that it reports the FDIC document, which speaks only of deposits in excess of 250,000, and then warns that all deposits will be converted into stock (at some newly-created entity).  The risk, of course, is that the FDIC may not be able to cover the first 250,000 in all failing banks.

Tue, 10/06/2015 - 22:06 | 6638283 Which is worse ...
Which is worse - bankers or terrorists's picture

By definition, in a fractional reserve system, they can't depending on how bad the run is. 

Tue, 10/06/2015 - 17:25 | 6637102 Dwain Dibley
Dwain Dibley's picture

That article is just idiotic speculation.  There is NOTHING in deposit accounts, they are all Credited Accounts, they are all Bank Debt, they are already a bank liability, there is nothing in them for the banks to take, they've already taken it, it's gone, they cannot steal again what they've already stolen, and more than likely, never existed in the first place.  The banks have no money to pay you what they owe you, they are broke.

The Ban on Cash - Part II

Wed, 10/07/2015 - 01:59 | 6638610 Global Observer
Global Observer's picture

 

 There is NOTHING in deposit accounts

There may be nothing in the deposit accounts of individuals, but there is always a lot of money in the deposit accounts of businesses, referred to as working capital, the money used to pay their immediate spending obligations and is proportional to the turnover of the company. Unlike individuals, businesses have no recourse to cashing the money out and putting it under mattresses. It is these amounts that will be bailed in. In time, the banks may again grant new loans to the same businesses to provide working capital, but won't happen automatically. When this happens, most businesses will fail to make payments on time, their working capital having been wiped out and converted to equity. They will be in a hurry to raise the money by selling their newly "acquired" assets, the bank shares, for working capital and the shares will fall like a rock since there is not enough liquidity in the system and will result in little working capital. If these shares are issued with a lock-in period, which they likely will be, they cannot even be sold. Even if the businesses, that lost their deposits, can get loans to cover their working capital needs, it will sharply reduce their profitability because the debt servicing costs on the working capital are extra costs and many may fold.

Sat, 10/17/2015 - 13:43 | 6639472 Dwain Dibley
Dwain Dibley's picture

Allow me to apologize for being unclear, how about this:

There is no money in any deposit account of any type in all of westernized banking, they are all credited accounts, they are all bank debt.

This means that the accounts held by businesses or billionaires have exactly the same amount of 'money' in them as the poorest amongst us have in theirs, $0.00.

Tue, 10/06/2015 - 22:36 | 6638348 Lyman54
Lyman54's picture

Interesting link Dwain, thanks.

Tue, 10/06/2015 - 17:22 | 6637089 roisaber
roisaber's picture

It took hundreds of generations for humans to forget the knowledge that silver is poison to creatures of supernatural wickedness.

Tue, 10/06/2015 - 17:15 | 6637058 PTR
PTR's picture

Depositor becomes "Unsecured creditor" at the bottom of the repayment obligation food chain.

 

Wed, 10/07/2015 - 04:33 | 6638698 Rock Sniffer
Rock Sniffer's picture

"Becomes"?  You already are and always have been. 

Tue, 10/06/2015 - 17:01 | 6637000 RighteousDude
RighteousDude's picture

Couldn't the powers that be just issue VISA payment cards with balances on them?

 

Tue, 10/06/2015 - 17:05 | 6636988 rwe2late
rwe2late's picture

 Insured deposits would not necessarily

be "safe" from seizure or "equity" conversion.

The upper limit to the amount of insured deposits could be lowered

as a purported "emergency" measure

rather quickly, in a matter of days, a weekend, or even hours.

A bank 'holiday' or ATM 'withdrawal freeze' could be effected to provide more time.

Tue, 10/06/2015 - 16:54 | 6636969 robnume
robnume's picture

About 5 or 6 years ago, Mike Shedlock put a picture on his website of a mattress with a safe built into it. .Gov won't stop until they've: 1. Killed us all. 2. Stolen every thin dime from the taxpayers they can get their hands on, by any means necessary. 3. Killed us all. Yeah, we're exceptional, alright. Exceptionally stupid.

Tue, 10/06/2015 - 16:16 | 6636796 SILVERGEDDON
SILVERGEDDON's picture

Well, mister late to them party - breaking news on what everybody knew was coming from Iceland and Cypress onwards.

Tue, 10/06/2015 - 16:15 | 6636792 ronin12
ronin12's picture

Gold, Bitcoin, Mattress

Tue, 10/06/2015 - 16:21 | 6636803 SILVERGEDDON
SILVERGEDDON's picture

No, dumbass - gold, silver, boating accident, brass, lead, copper. 

Mattress is for bitches who wanna hang out with survivors.

Shitcoin is for bankster wannabe losers who still play Dungeons and Dragons in Mom's basement.

Fucking kids these days - no critical thinking skills at all whatsoever.

Oh well, at least you got 33 percent correct. 

Wed, 10/07/2015 - 08:00 | 6638920 Muddy1
Muddy1's picture

@Silvergeddon,
And what makes you or Phoenix capital think that the confiscation of PM's, guns and ammo are not a part of the "larger strategy". Time for you to use your critical thinking skills.

Wed, 10/07/2015 - 17:32 | 6641833 SILVERGEDDON
SILVERGEDDON's picture

What the fuck do you think boating accidents are for ? 

Time for you to read the fucking comments in full before you open up your pie hole to use a bunch of big words you Googled up.  

Wed, 10/07/2015 - 07:42 | 6638882 JRobby
JRobby's picture

If you are not a survivor, what are you?

Tue, 10/06/2015 - 17:41 | 6637177 Urtica ferox
Urtica ferox's picture

Arms with suppressors, ammo, silver, hand tools and the knowledge of how to use them, binos, rangefinder, knife, hand gardening tools, land. Stash of dried food. If there is power - heat treating furnaces plus machine tools and the knowledge of how to use them all. A bugout trailbike (200 cc - 500 cc). Easier to bugout on a bike than 4WD, harder to get snarled up in traffic jams with it, and can go WAY more places.

BTW this is not a wish list, if you get my drift ;-)

Wed, 10/07/2015 - 00:28 | 6638525 HolyfieldsOtherEar
HolyfieldsOtherEar's picture

When the time comes I can just look up all that stuff on the Internet.

 

(SIX MONTHS LATER)

…oh shit.

Tue, 10/06/2015 - 16:37 | 6636884 gafgroocK
gafgroocK's picture

 

 

Guns, Ammo, Guns, Ammo, Long Ropes

Wed, 10/07/2015 - 07:52 | 6638905 wizteknet
wizteknet's picture

Large SAFE!

Tue, 10/06/2015 - 16:44 | 6636918 SILVERGEDDON
SILVERGEDDON's picture

Don't need ropes - they will eat each other. Same as it ever was. 

Tue, 10/06/2015 - 17:41 | 6637178 RafterManFMJ
RafterManFMJ's picture

Jess keep yur 'ead down, an' stay oudda th' way, laddie.

Wed, 10/07/2015 - 06:22 | 6638767 fukidontknow
fukidontknow's picture

Can someone please tell Peter Schiff that New Zealand is a deposit stealing banksters paradise. I like a lot of what he has to say but he has these weird ideas about New Zealand being something it's not (free etc.) when really it's a shitty little fascist milk republic where everything the politicians do is to suit the big multinational banks. 

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