What’s Behind the Wave of Bank Account Closures?
From Peter Reagan at Birch Gold Group
We’ve already reported that your bank could fail at any time thanks to the Fed’s fight against inflation. Banks adapted to a near-zero interest rate environment over the last two decades, and today they’re in bad shape overall.
Today, many are offering tempting yields on savings accounts. (Because it’s cheaper to borrow money from you, the customer, than from the Federal Reserve’s emergency funding program. I cannot stress this enough: no bank is truly safe.
Now, so long as your deposits stay under the FDIC’s insurance limits, a bank failure might be little more than a temporary inconvenience. When a bank does fail, the FDIC generally creeps in on a Sunday and makes sure everything is open for business as usual Under New Management the following morning.
Sometimes, though, banks can fail individual customers…
Say you’re standing in line at the grocery store, swipe your debit card to pay. Then you swipe again. After an embarrassing exchange with the cashier and an irate phone call, you’re astonished to learn that your bank has closed your account?
No warning. No notice. Simply cut off from your deposits…
Why would a bank do this? “We’ll do whatever we can to fix this”
These sudden bank account closures happen a lot more often than you might think. Recently, the issue came to the attention of The New York Times:
…they discover that their accounts no longer work while they’re at the grocery store, rental car counter or A.T.M. When they call their bank frantically, representatives show concern at first. “Oh, no, so sorry,” they say. “We’ll do whatever we can to fix this.”
But then comes the telltale pause and shift in tone. “Per your account agreement, we can close your account for any reason at any time,” the script often goes. These situations are what banks refer to as “exiting” or “de-risking.”
For some unspecified reason, the bank decides a customer is “too risky” and cuts them off.
This would be completely understandable if the customer were engaged in fraud, money-laundering or wiring money to a North Korean or Iranian bank account.
That’s not what’s happening in these cases.
Rather, the source of the problem might be something as simple as a software bug, according to Aaron Ansari, a programmer who helped develop banking risk algorithms:
There is no humanization to any of this, and it’s all just numbers on a screen. It’s not “No, that is a single mom running a babysitting business.” It’s “Hey, you’ve checked these boxes for a red flag – you’re out.”
In the criminal justice system, you’re famously innocent until proven guilty.
In the banking system, you’re only innocent so long as you aren’t suspicious.
So what constitutes “suspicious” activity, in the eyes of a bank’s risk-management algorithm?
How about a 10-year-old arrest?
Nick Seidel, 42, of Chicago, has had his bank break up with him three times. Chase dumped him first. Then, after an 18-month relationship with Fifth Third, it, too, shut down his accounts.
“I had never had any banking issues, no overdrafts or suspicious activity,” Mr. Seidel said. “Apparently some banks just run public searches of their clients and drop them if they are justice-impacted. It’s always a frustrating, inconvenient and embarrassing experience.”
The hilarious part of this story is, Mr. Seidel learned from his mistakes. He’s now employed by a federal regulator investigating securities fraud – he passed the background check to become a fraud investigator, but he can’t have a bank account!
Hopefully you’ve never had any run-ins with the criminal justice system.
But do you ever use cash?
That, too, is highly suspicious…
The owner of a bar used the same bank for years, depositing their profits on Fridays and Mondays. Then one day all their accounts were closed. Why?
Well, federal law requires depositors to fill out a form when depositing or withdrawing $10,000 in cash. Apparently, that’s not good enough any more:
The bank’s explanation is especially maddening, given that he and Ms. Maslanka had filled out plenty of the $10,000 forms over the years. “What’s to gain from not filling it out?” he said. “What’s the risk of filling it out? I’ve done both when deposits warranted that.”
“I’m still so confused,” Ms. Maslanka said. “Do you think I’m part of some underground Mafia, laundering money through my little beer bar?”
The point is, banks require compliance with a secret list of behaviors – and failure to comply with their unwritten rules gets your account closed.
One such member of Chase named Naafeh Dhillon tried to pay for dinner in December and had both his credit and debit cards declined.
When he called the bank, a support agent said Chase had let him go, and a notice should be in the mail. The cause? “Unexpected activity.”
When he visited the bank, Chase cut Dhillon a cashier’s check for his balance with no further explanation.
Like most honest people, you could break the secret rules without even knowing it, without engaging in any illegal activity. Suspicion is sufficient evidence for banks to close your accounts.
Surely all this time and effort is making the nation safer from real criminals, right?
“In the majority of cases, no fraud is ever found”
If there was some major wave of criminal activity that banks were helping to prevent, and helping law enforcement catch and prosecute the criminals? That, at least, would be more acceptable.
Then you might feel a little bit better about having your account closed without warning or notice, right? “I’m just collateral damage in the war on crime,” you could tell yourself. Your inconvenience and frustration are a small price to pay to help keep America safe!
Sadly, that just isn’t the case:
The banks do this when they suspect some form of bank fraud. But experts say in the majority of cases, no fraud is ever found, leaving customers to wonder, Why Me?
One major force is regulatory scrutiny, according to banking expert J.D. Koontz:
Banks are always under the watchful eye of the regulators, who will fine them for not doing their job or not protecting consumers. And so by freezing or closing someone’s account, they don’t necessarily get penalized for that, and so they probably tend to err more on the side of caution, which, unfortunately, does create hardships for individuals. But a 2018 report by the Bank Policy Institute found that less than 5 percent of suspicious activity reports actually warranted follow-up by law enforcement.
That’s right – for every 20 customer accounts closed, less than one is deemed worthy of investigation by law enforcement.
I‘ve said it before, and I’ll say it again:
Your bank accounts are NOT your assets – they’re the bank’s liabilities.
When a bank has your money, the bank has control – not you.
Your money isn’t always safe in a bank because it’s not your money anymore.
At any moment, for any reason (or no reason at all), your bank might choose to exercise that control – leaving you standing in line, arguing with a cashier and swiping your debit card over and over.
There are some things you can still trust
Since you can clearly see that your money isn’t always safe in a bank, even if that bank hasn’t failed yet, that means you should be prepared with other options.
Here are some suggestions to consider:
Have accounts with more than one bank. If you bank with a national chain, consider opening an account at a regional or local bank or credit union. Like grandma used to say, “Two is one and one is none.”
Keep some “emergency fund” cash on-hand. This is just common sense if you live in a disaster-prone region. When a hurricane or earthquake disrupts electricity for your area, all the ATMs are down and credit card machines won’t work. Having a few hundred bucks handy can make a huge difference – whether paying for groceries or filling up the tank to get out of Dodge.
Diversify with unbanked assets. There are a few financial assets that live outside the banking system and have been considered safe-haven stores of value even before the invention of banks: Physical precious metals. Diversifying your long-term savings with assets like gold and silver could give you a tangible, physical asset you can always access whether or not the banks are open.
Physical precious metals like gold and silver historically acted as reliable safe havens, for example, when Washington Mutual bank failed in 2008, or when SVB failed back in March.
More recently, gold has handily outperformed inflation, and is more liquid than you might think.
All in all, I don’t like the idea of depending on a bank’s opinion of my financial decisions. I think it’s smart to reclaim a portion of our own financial sovereignty. If you agree, you can learn more about precious metals as investments in our free kit.2023, big banks, Featured