How safe are your bank savings? Because in the following real life example, this new bank client lost all of his lifes savings. Last May, Mr. Wang from Hangzhou, China walked into a bank on Jiangpu Street in Nanjing, opened a new bank account, and made a 12 million Yuan deposit into his account. The bank was new, but it didn’t look different from any other bank that Mr Wang had been to. It had a giant vault, counters for the tellers, exchange and interest rates posted on the wall. And above all, it was very elegant.
But after a few weeks, Mr. Wang stopped receiving the interest he’d been promised on his savings. When he tried to withdraw his money, the bank then froze his deposit. So he went straight to the police to lodge a complaint. Turns out that even though this bank had been operating for over a year, it wasn’t actually a licensed bank. Apparently some people had simply renovated a building to give customers the impression that they were a real bank. But in reality it was a total Scam.
Some of the Senior executives have since been arrested, and the story is now slowly leaking out to the Western world. What I find particularly interesting about this story is that it reveals how people have been programmed over the years to hand over their hard-earned savings to complete strangers, simply because they walk into a building with a vault, informational posters on the wall, and a polite uniformed teller seated behind a screened counter.
In this case the bank itself was a ‘Fake’, i.e. it wasn’t sanctioned by the government. Candidly, though, I find very little difference from the many government-licensed banks that trade everyday, who are recklessly gambling their customers’ money away, and most are effectively insolvent to begin with. It’s crazy to think that very few people ever conduct due diligence on the bank they choose to invest their lifes savings with.
You wouldn’t just walk up and hand over your life savings to some bum on the street, would you? But put a man wearing a suit standing in front of a vault, and suddenly the air of legitimacy compels us to hand over everything to this complete stranger, who has a track record of totally screwing his customers. Many Banks, particularly in the West, are highly illiquid and borderline insolvent.
You don’t even have to take my word for it. Go see for yourself. Each quarter, most of the large banks publish their financial statements, and with a few simple calculations you will be able to see just how illiquid they really are. Some of the largest Banks in the West, for example, state in their financials that they only hold a small fraction (often less than 3%) of their customers’ deposits. The rest is loaned out or simply gambled away. It’s not exactly a conservative practice.
Given that they actually publish these results, the Banks themselves are simply telling anyone who’s paying attention that they’re very risky. Fortunately for them there are very few people who are paying attention. Most people simply think that just because it’s a Bank, it must be safe. This Chinese Bank happened to be total fake. But again, when you look at the actual data, the “Real” Banks, particularly those in the developed West, aren’t much safer at all.
Bottom line—Banking is all about customer confidence, and it’s imperative to have trust and reliability in Credible, Conservative, Strong, and Transparent Financial Institutions. Even if you don’t understand finance, one way to test your Bank’s transparency is to ask them for their financial statements. If they won’t do it, you should not only Walk out the door, you should Run.
Handing your Money to a stranger “DEMANDS” transparency. If they’re not willing to be transparent, that’s a bad sign. As the people of Cyprus found out nearly two years ago, just because you can log on to your Bank’s website and see an account balance printed on the screen, doesn’t mean that your money is actually there and available to be fully withdrawn as you desire.
For Banks, your account balance is a liability– It is money they owe you. Think about that: your bank OWES you YOUR own money. But do they have it? It’s a question worth asking. And a lot of the information you should be seeking, is right there in the financials. Just because there’s a vault in a building doesn’t mean that your Bank is good to cover your lifes savings, should you choose to remove them.
Trust and confidence are built by conducting serious due diligence and making calculated, informed decisions about the strangers that we’re dealing with!
Author: Simon Black