Two BIG Reasons NOT to Keep Your Cash in the Bank

It’s bad enough depositing your money into a bank account and earning essentially zero interest on it, or in some countries, having a negative interest rate.
It’s even worse knowing that once you deposit your money in a bank, it’s not really yours anymore. You have turned over your property to the bank in return for a debt claim. You become an unsecured creditor holding an IOU.
Worst of all, there’s the ‘bail-in,’ which we all became familiar with during the 2013 banking collapse in Cyprus. Some uninsured depositors got half of their money back, although, at one bank, customers received nothing of their deposits over the ‘insured’ amount.
In 2014, the leaders of the Group of Twenty (G20) – representing the world’s 20 largest economies – declared the Cyprus model should apply globally. They did so in a mind-numbing tome entitled Adequacy of Loss-Absorbing Capacity of Global Systemically Important Banks in Resolution.
Deposits in banks that are ‘too big to fail’ will be promptly recapitalized with their unsecured debt. And… guess what? The largest chunk of unsecured debt is your bank deposits. Insolvent banks will recapitalize themselves by converting your deposits into worthless bank stock. This avoids taxpayer-funded bailouts that proved politically unpopular during the last financial crisis.
Oh, and get this… the G20 has also declared that derivatives – the toxic contracts Warren Buffett calls ‘financial weapons of mass destruction’ – are secured debts. Since your bank deposits are only unsecured debt, guess who gets your money if the bet goes the wrong way for the bank? Answer: It’s not you.
Heads, the bank wins. Tails, you lose.

This post was published at Lew Rockwell on March 16, 2016.