Risks of Money in the Bank

Given the recent spate of bank runs in China it may be worth looking again at the risks involved in keeping your money in a NZ bank.

For example did you know:

If your NZ bank fails your deposits can be confiscated. 

Called ‘bail in’ or Open Bank Resolution (OBR) by the Reserve Bank, your deposits can be used to support the failing bank.  Like the confiscation of billions of dollars in Cyprus during 2013 there is no guarantee that any of your deposits would ever be returned.

As the Australian Citizen’s Party reports:

The RBNZ prides itself on its hard-line insistence on strict “market” discipline for the banks. It justifies the OBR bail-in system, for instance, by defining a depositor not as someone who has entrusted their money to the bank for safekeeping, but as an “investor” who has “freely invested in a private institution and has enjoyed a return on that investment whilst accepting the risks associated with the investment”.

This definition does not reflect how bank customers understand the relationship, which is one based on trust; moreover, it is a joke when assessing the “return” the “investors” have supposedly “enjoyed”: miserly deposit interest rates in no way compensate for the risk of bail-in. Worse, most Kiwis have no idea that their deposits can be bailed in (just as they had no idea that their deposits weren’t guaranteed), so how can they be expected to make a proper assessment of risk?
 
When you deposit money in a bank the bank owns that deposit.

As this article The Conversation points out:

Depositors are vulnerable because once their money is with a bank, it no longer legally belongs to them. It belongs to the bank which can use it for its own commercial purposes.

Banks have fragile business models.

The same article explains the inherent fragility of the banking business model, especially if there is a run on the bank.

Because they borrow short (through deposits which are repayable on demand) and lend long (through mortgages and other loans that are repayable at a fixed date in the future). Banks do not hold sufficient funds to repay all, or even most, of their depositors at once.

In contrast ownership of digital currencies like RedPill rests entirely in your hands.  Only you have access to your account.  The downside is that if you lose your account details you have no way of retrieving your funds.  Accepting this responsibility can help avoid the risks of keeping money in the bank.

Learn more next Wednesday at 7pm

Branton Kenton-Dau is inviting you to a scheduled Zoom meeting.
 
Topic: Is your money safe in the bank?
Time: Jul 29, 2020 07:00 PM Auckland, Wellington
 
Join Zoom Meeting
https://zoom.us/j/92020462328?pwd=bG8zMnczU3hReUNPSDduU0Z6ZFpJZz09
 
Meeting ID: 920 2046 2328
Passcode: 8npizn

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