Warning: Our Bank Deposits Are No Longer Safe

As a result of recent changes to the rules governing the financial system operating throughout the G20 nations, a serious threat has arisen to the finances of individuals, families, and institutions that have entrusted their assets to major banks. Here is the situation: in case "systemically important" banks should fail, they are now authorized to take over the assets of their clients, including our deposits! This procedure is known as a "bail-in”—as distinguished from a "bail-out”—and it has already been implemented in Cyprus. This threat has been thoroughly documented by Ellen Hodgson Brown (author of two extraordinary books on our money system, The Web of Debt, and, just published, The Public Bank Solution), and by the Public Banking Institute, which she founded. For a vivid, compelling explanation of the crisis provided by the Institute, see this brief video: http://www.youtube.com/watch?v=f-sHAwNfoL4 . Given the vast, destabilizing involvement of major banks in derivatives gambling, about ten times the volume of the real economy as this video shows, major banks are constantly at risk of failing, and suddenly triggering a bail-in assault on our assets. The peril is especially clear in Canada which legalized the bail-in procedure in its 2013 Federal Budget. See: www.policyalternatives.ca/publications/monitor/depositors-beware . But this bail-in agenda was mandated for all the G20 nations at their 2011 meeting, and it is likely to be reenforced by provisions of the “free trade agreements” presently being negotiated by Canada and the U.S. with the European Union, and the Trans-Pacific Partnership. 

In Canada our Finance Department has assured us that our deposits remain safely protected by the Canada Deposit Insurance Corporation. But in fact the CDIC (as of April 30, 2013) had only $2.6 billion to insure $665 billion of deposits in Canadian banks. The situation in the U.S. is similar, with the Federal Deposit Insurance Corporation having about $28 billion available to insure between six and seven trillion dollars of deposits. Paltry protection from a major meltdown like that of 2008. Moreover, we also have uninsured assets entrusted to banks, including insurance and pensions. These also are vulnerable to bail-in procedures. 

Having been assured that the bail-in rescue plan is readily available in case they fail, banks are all the more likely to participate in speculative activity. When driven to insolvency by their losses in derivatives gambling, the losing banks' first priority must be to pay off the winning banks ("counter parties") with whatever resources they can muster, now including their clients' assets—our financial resources. The outrage of bail-ins includes the "super-priority status" of bank counter parties over our claims as bank clients. Another version of the bail-in process is the raiding of pension funds of workers in order to pay off the big lenders. This is occurring now in some of our cities. 

The danger from bail-ins will be especially high as long as the US government remains on the verge of defaulting on its debts. Although the October 17 default has been avoided, if a default should occur, the global financial system, with some $700 trillion of speculative derivatives churning around, may be thrown into the sort of chaos that would bring a major financial meltdown, perhaps surpassing that of 2008, with many bank failures resulting in bail-ins, bringing a massive shift of financial resources from the middle class to the already obscenely wealthy. Even if we escape this type of peril in the short run, the threat to our financial welfare from the banks' speculative excesses remains imminent. 

Ultimately it will require persistent political action to eliminate the grossly unjust bail-in threat—e.g., outlawing bail-ins altogether, imposing a financial transactions tax, restoring the Glass-Steagall Act (which separated investment banking—mostly derivatives gambling now—from depository banking and insurance). The movement to develop public banking, including establishment of postal savings banks in which depositors' funds would be completely safe, needs strong public support. 

The bail-in threat is a new development of which hardly anyone is aware. And that is the big problem. We have become so accustomed to trusting banks to keep our financial resources safe that it is hard to believe the bail-in threat could be real or imminent. Of course there is no way of knowing how great the danger is. But this new situation certainly gives reason for concern. What precautions might we take to protect ourselves and the institutions we value? We all need to be seeking alternatives to the mainline banks that we can no longer trust. In the absence of public banks and local currencies, and short of storing cash under our mattresses, it may be possible for us individuals and institutions to find safe haven at least for some of our financial resources by using credit unions. The risk probably differs from one credit union to another. We need to explore with each specific credit union the extent to which members' assets are entrusted to major banks—preferably not at all. We need to consider becoming active credit union members, constantly vigilant regarding the safety of our collective resources. We can no longer take it for granted that our bank deposits are safe. 

George Crowell 
georgecrowell@rogers.com