Not long ago I walked into a local branch of my bank - the 13th largest bank in the United States based on consolidated banking assets, according to the Federal Deposit Insurance Corporation's (FDIC) second-quarter 2015 data.
I wanted to cash a check for a few thousand dollars. It was a business check made out to cash; it was my business account and there was plenty of money in it.
No big deal - happens every day, right?
Well, what happened next was downright scary. And I’ll tell you exactly what happened because it has profound implications for every American.
That's because it means capital controls, courtesy of the government and the U.S. Federal Reserve, could be right around the corner. They're already in effect in some form.
That means you might not be able to get the money you want out of an ATM. You might not be able to cash a check when you have plenty of money in your account. Or worse... your bank could take your deposited cash and convert it to shares of stock in that bank. In other words, if you think you'll always be able to get your money out of your bank, you're wrong.
So, here's what happened to me at the teller's window...
When I went to cash the check, a routine activity that must happen tens of millions of times every day in the United States, the woman behind the big, thick glass partition said, "I'm sorry. I can't cash this for you."
"Pardon me," I said. "What do you mean you can't cash that?"
She replied matter-of-factly, "I don't know you."
"You don't know me because you're new here," I replied. "Please get the branch manager," I requested politely.
"I'll call her, but you'll have to fill out this form," she told me as she reached into a drawer under the counter.
Just then the branch manager came over to the teller inside the cage. "Hi Mr. Gilani, is there a problem?" she asked.
"Yes, there is a problem," I replied. "I'm trying to cash a check and first this young lady said she didn't know me and couldn't cash the check, then she said I'd have to fill out some forms to get my money out. What's going on?"
The manager told me there were some "new rules" they had to follow. She acknowledged she knew me, telling the teller I was okay, but told me I'd still have to fill out the form.
"I am not filling out any form ever to take my money out of my account," I stated. "Is that a federal law or is that this bank's idea of customer service?"
"It's just what we have to do now," the manager replied.
So I looked at her as if to say, "Really? You're not going to tell me why I have to fill out a form to take cash out of my account?"
Then I said, very calmly, "I'm sorry - and I don't want to be a jerk - but if you don't cash this check or if I'm ever asked to fill out a form again when I cash a check, I'll close all my accounts here."
I got my cash... and a seriously creepy feeling.
[mmcallout type="pullquote" social="true" align="right"]If you think you’ll always be able to get your money out of your bank, you’re wrong.[/mmcallout]
No one - no one - has ever been able to tell me why the teller wouldn't cash my check, not even those friends of mine who actually own banks. The best answer I got was: It was a new teller and she probably didn't understand the "SARs rules" and figured she'd better not cash the check, in case she got in trouble.
Which begs the question, what are SARs?
They are Suspicious Activity Reports, and according to the Federal Deposit Insurance Corporation's (FDIC) website... "A bank shall file a suspicious activity report with the appropriate federal law enforcement agencies and the Department of the Treasury, in accordance with the form's instructions, by sending a completed suspicious activity report to FinCEN (Financial Crimes Enforcement Network) in the following circumstances:
Banks fill out these reports regularly. They have to... or else...
You see, according to a post on the well-respected ZeroHedge.com site, "Banks have minimum quotas of SARs they need to fill out and submit to the federal government. If they don't file enough SARs, they can be fined. They can lose their banking charter. And yes, bank executives and directors can even be imprisoned for noncompliance."
As annoyed as I was with the difficulty of getting my money out of my account (and the teller no doubt filing a SAR on me), at least I was able to get my money.
But that can change.
There are two scenarios where depositors could either be restricted from withdrawing their cash or have their deposits confiscated and converted into bank stock shares.
And, no, I'm not kidding.
Now, this takes some imagination but, unfortunately, not a whole lot of it.
First of all, imagine the economy sinks back into a deep recession and the Federal Reserve decides to lower interest rates into negative territory.
The Fed can push rates so low that interest rates are negative. In other words, if you deposit your money in a bank, they don't pay you interest, they charge you interest to park your money with them.
If that happens (and it's already happening in Europe), to stop depositors from taking their money out of banks, capital controls could be imposed by government regulators, meaning the FDIC or the Federal Reserve could restrict how much cash depositors can withdraw.
We know governments can do this. It's been done in Cyprus, in Greece, and Ukraine. The U.S. government would do it to keep banks solvent, otherwise massive outflows of deposits would cause banks to have to be shut down.
While it's possible, but not likely, that the Fed would take rates into negative territory as a matter of routine policymaking, it is entirely possible in the next banking crisis that depositors in giant too-big-to-fail failing banks could have their money confiscated and turned into equity shares.
Your deposited cash is an unsecured debt obligation of your bank. It owes you that money back.
If you bank with one of the country's biggest banks, who collectively have trillions of dollars of derivatives they hold "off balance sheet" (meaning those debts aren't recorded on banks' GAAP balance sheets), those debt bets have a superior legal standing to your deposits and get paid back before you get any of your cash.
You can thank the Obama administration for that. Big banks got that language inserted into the 2010 Dodd-Frank law meant to rein in dangerous bank behavior.
Here's what can happen to your deposits in the next banking crisis.
If your too-big-to-fail (TBTF) bank is failing because they can't pay off derivative bets they made, and the government refuses to bail them out, under a mandate titled "Adequacy of Loss-Absorbing Capacity of Global Systemically Important Banks in Resolution," approved on Nov. 16, 2014, by the G20's Financial Stability Board, they can take your deposited money and turn it into shares of equity capital to try and keep your TBTF bank from failing.
In a San Diego Free Press article, "The Bail-In: How You and Your Money Will Be Parted During the Next Banking Crisis," author John Lawrence writes, "The (Financial Stability Board's) language is a bit obscure, but here are some points to note:"
The points are actually made by Ellen Brown, author of "Web of Debt" and "The Public Bank Solution."
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These "laws" exist, and the public has no idea access to their deposits can be restricted or that their deposits can actually be confiscated as part of a big bank "bail-in" to try and save the bank from closing.
Oh, and don't think it's safe to put your cash in a bank safe-deposit box. A bank, under government orders, can confiscate cash in there too.
Me, I'm spending my excess cash on hard assets. Heavy stuff, like gold, that can't be "toted away" by the government or the Federal Reserve.
The fix is in. All the way in. And I'm here to tell you to think long and hard about where you have your hard-earned money.
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