Is Your Bank Account Safe?

March 1, 2015

How much money do you have in the Bank? I’m not asking your net worth. Rather, whether your net worth is positive or negative, how much do you keep in savings accounts, checking accounts, certificates of deposit, Christmas club, and other accounts with your local bank?

You do realize that, whatever the amount, you are earning interest that’s below the rate of price increases as measured by the understated CPI? The purchasing power of your money in the bank is going down even as the nominal, tiny returns you receive are taxable income.

I suppose you are comfortable in the belief that at least your money is safe, especially with the FDIC insurance which the bank is forced to carry. If there is a problem at the bank, surely you’ll get your money back, even if it may take a year or so, through the FDIC guarantee.

You may be surprised to find that the amount held by the FDIC to cover depositor losses is only around $25 Billion. (That number is two years old – the web site is useless in providing the current number.) That $25 Billion “insures” around $10 Trillion in bank deposits – that’s about $1 of coverage for $400 of deposits.

During “normal” times, the FDIC’s income is enough to cover its loss payouts. But, these are NOT normal times we live in. By some accounts, the five biggest US banks lose money each year, except that various bailout money keep them afloat. Money like from the various QEs which have given the banks Trillions to deposit with the FED, earning interest.

But the really big problem is that much of bank “assets,” especially at the big banks, is securities in the derivatives markets. That’s about $300 Trillion that banks have on their balance sheets as assets.

The FDIC’s $25 Billion reserves represents about $1 of reserves for every $12,000 of derivatives exposure!

Those derivatives cover interest rate/credit default swaps, stock market puts and calls, sovereign debt insurance, forex exchange rates, and other volatile instruments. A swing against the banks in the derivatives market of only 0.01% could wipe out the entire FDIC fund.

Eventually, the FED will not be able to keep interest rates at current near zero levels. Eventually, the government’s Plunge Protection Team (Working Group on Markets) will not be able to maintain today’s high stock price level, especially as business profits plunge.

Likely this year or next, the dike will break and the derivatives market will implode. When that happens, many banks will go belly up, requiring the FDIC to ante up to save depositors. Obviously, not every depositor will get his money back.

To handle this imminent disaster, governments around the world, including our own US government, have been passing legislation and have been implementing regulatory procedures allowing for depositor Bail Ins, as was done a couple of years ago in Cyprus.

In case you have no idea what a Bail In is, let me explain.

  • First, the law has been changed to say that your deposits ARE NOT YOUR MONEY! Now, your deposits are merely unsecured loans to the bank. Now you have to get in line with all the other bank creditors – and behind any secured creditors – to get back even a little of you money.
  • Second, the law allows for a reorganization of the bank. Your deposits, which now are considered as loans to the bank, are forcibly changed to stock certificates of the bank. Instead of the bank owing you money, now you’re an owner in the bankrupt bank.
  • Third, the incompetent management of the bank – because of their astute handling of the crisis – is allowed to continue running the bank (running it into the ground), and even allowed to earn bonuses for saving the institution.

I suggest that you may want to keep only as much money as you need in your checking account, and hold cash under your mattress. Use your credit cards (but continue to pay balances as they come due), but don’t trust the banks to protect your interests.

Instead of saving paper Dollars at home, you may want to convert some of it into Gold and (mostly) Silver bullion coins, such as the US 1oz Liberty Silver Eagle. Don’t let anybody sell you “numismatic” coins, unless you already have a lot of knowledge in this field.

A financial crisis which could wipe out your bank account also could make the paper Dollar depreciate in value more quickly than it already is losing value. Think of the Precious Metals coins as insurance.

The bottom line is, our country is in dire financial straits, and the situation looks to be getting worse. One possible result is that much of your money in the bank could be lost. While you may not lose a penny, the risk is large enough that you ought to think about protecting yourself.

Robert (Bob)  Shapiro is self-taught in Austrian Economics and has consulted briefly for the governments of Mexico, Greece, Portugal and Spain. He has traded Gold & Silver and their stocks since 1970. Bob Shapiro’s blog is

Fed has done all it can to fix US economy's non-structural issues, now it must hike rates