The Boy Who Cried Broke

A Rant: Banking is Dead

Banking is dead (or dying)

I just got off the phone with a friend & we were talking about a major problem. This problem relates to the current banking world. Both speaking from (a lot of) experience, we know all-too-well the difficulty of opening a bank account for either a personal account or business account around the world. I’m sure many of the readers can also attest to this problem. The general finding is banks will not entertain opening an account for you unless you are resident there, your business is registered there or both. They want you to have codes, numbers, digits, addresses, tax numbers that all link you to that account and that account to an address/residency code. Make no mistake, there is absolutely nothing about security, safety, profits, business plans or customer service here–it is solely about control.

Banks now are extensions of the state–they only operate as a means of control over the public finances rather than offering independent private storage of deposits & investment services. Their entire existence is bound by hundreds of thousands of complicated laws, regulations and restrictions that are growing to an endless degree and their employees themselves do not know (why do you think so many live chat robots are the only person you can speak to for help?). They can (and will) shut down your account without a moments notice if you displease them and even if you are a great, upstanding citizen–try going to get your cash when you want at your local bank branch (which they closing rapidly I may add). See what happens. You’ll see that they are far more politically-oriented than than business-oriented if you haven’t noticed the obvious already.

Being rejected from as many banks as I have, purely for residency and incorporation location reasons, I questioned why any bank would play ball with such restrictive, captive, limiting rules & regulations; if they’re not accepting my money and nobody elses, how are they still in business? In fact, there are some banks on island countries that are no longer able to open bank accounts remotely which is an absolute death sentence given its geographic positioning. So why are they going a long with these laws? Why not break free?

We’ve witnessed the amazing emergence of Electronic Money Institutions (EMIs) who follow regulations without problems–but generally accept international clientele much easier. So why do traditional banks no longer wish to accept foreign investors, businesses and personal accounts? Why wouldn’t a bank want to make money from providing services to you & having more on their balance sheet?

The answer is… banks don’t need us anymore.

For two reasons:

The first reason is banks have gotten so caught up with the amazing levels of debt in the world that they are reluctant to continually expand their balance sheet. It’s analogous to an extremely obese person who realizes they are in trouble with their health and refuses to eat something to save 10 calories. They are not addressing the problem which is they are extending non-performing loans and remaining part of a system that snapped in 2008 which hasn’t been repaired. Their instinct is to tighten their belt for you and I while loaning millions to corporations who could file Chapter 11 at any moment, but nevertheless, are important to the economy (for the time being). Big banks are on the hook for billions and billions in derivatives; Deutschbank especially. Essentially, its irresponsibility.

This shakiness has lead to a lot of the banks parking their money at the central banks of their respective countries. If Bank A is looking across the street at Bank B and vice versa, and neither of them trust each other (because they know that have hot garbage on their books)–it’s better to park your money at Bank C (Central Bank) who cannot go bust. This is exactly what happened in 2008. Banks could not access cash to meet their plentiful demands because the collateral posted for that cash were Mortgage Backed Securities (MBS). MBS were trash (they were selling garbage to garbage men for fat fees) and when everyone knew, they didn’t lend to each other. No Collateral–> No Cash–> Defaults.

Additionally, with the size of their books now–a 10,000 dollar deposit just feels so minuscule compared to the numbers they are moving around. The 10,000 is not going to make or break them at this point.

I should state that if you do have heaps of money, banks will often open an account for you regardless given that they see that you are “worth it”. Not recognizing that big deposits put more pressure (risk) on their balance sheets than otherwise.

The second reason I think is more intrinsic. The Eurodollar system does not require the deposits of our businesses any longer (nor did it for years). The clever-far sighted response of the bank is to reject these serious laws against their ability to perform/earn a profit and strive to be the best bank out there for the world. We both know that a bank that goes rogue will lose it’s license the next day. However, even if we are assuming the state will allow the bank to operate independently, it will surely be locked out of the Eurodollar system. This system provides access to deposits from “printed reserves” from all over the world at any given moment in a micro-second. In other words, banks no longer have to provide a good service, management money responsibly, offer great rates, perform financially nor lend carefully to their clientele. Why should they? They can receive a mini-bailout whenever their balance sheet requires it.

At any given moment, they can receive the assets/liabilities from other banks to make sure they are made whole and not failing. It doesn’t matter how many balls are used in the game, as long as someone keeps score. For the time being, banks have received (and continue to) massive free money streams of support (since 2008) to compensate for the bad collateral they all hold, which makes everything look normal. The abnormal aspect is that our deposits don’t matter to them anymore. To make money, they no longer need our deposits.

It’s a scam. Banks are now going to face the problem of having too much in the form of reserves (this is why reverse repo has absolutely exploded over the last year) and nowhere to put all this freshly created money.

The hardcore policing of KYC/AML requirements are a bit laughable for this reason; the arsonist is checking you for matches. This fraud became clear to me when I found out that only about .05% of all the money (or the fact that there’s different definitions of money) that exist are in the form of physical cash. Jim Rickards often says, “the best cryptocurrency of all is called the US Dollar”.

Banks have detached from being private companies and are now branches of the government who are motivated to play the game the best rather than be a good player. Said another way, banks become rewarded if they comply to state dictates more-so than if they offer a premium product to you and I. Again, we no longer matter.

I think that they are screwed in the long-term (None of this relates to the absolutely crappy experience and high costs that a majority of them offer). There will be no more juice left to squeeze sooner than later. Either nobody in their right mind will be willing to play part in this system OR they would have rejected so many potential clients that they will never get them back. Yes, some will become naively trapped & be happy about their 0.75% yields, but rejecting 99% of your customers is a bad business model. They have sold the ‘big brother government’ rope by which they will all hang.

EMIs have correspondingly filled this gap from what I can tell.

Back in the day, a bank was a gold depository whereby a checking account allowed you to write checks against the value of that gold and a savings account paid you interest for your holdings. Something tells me that the new banks or places to keep your wealth will be gold depository/storage companies [who have already begun offering loans for your precious metal deposits!], EMI companies for transfers and cryptocurrencies.

I don’t mean for this to be alarmist by saying “I predict banks will disappear within 6 months” but it does seem quite clear that their existing model won’t work into the future.

If they don’t need us anymore–we won’t need them anymore, either.

#StayOnTheBall