Could the Banksters Grab Your Bank Deposits?

200px-FDIC_2500_sign_by_Matthew_BisanzRespectfully submitted by Lawrence E. Rafferty- Guest Blogger

The recent news about Cyprus banks confiscating depositor’s funds sent chills throughout the financial world here and abroad.  I couldn’t believe that the plan in Cyprus hinged on the idea that the bank could just steal customer’s funds to balance the bank’s books.  I muttered to myself when I read the story that something as crazy as that couldn’t possible happen here in the United States.  Unfortunately, I learned that the plan to pull a Cyprus type grab here was already in the works. 

“A joint paper by the US Federal Deposit Insurance Corporation and the Bank of England dated December 10, 2012, shows that these plans have been long in the making; that they originated with the G20 Financial Stability Board in Basel, Switzerland (discussed earlier here); and that the result will be to deliver clear title to the banks of depositor funds. ” NationofChange 

The above article explains that most of us do not realize that when you deposit money in a bank, that it becomes the property of the bank and we become unsecured creditors of the bank! “Although few depositors realize it, legally the bank owns the depositor’s funds as soon as they are put in the bank. Our money becomes the bank’s, and we become unsecured creditors holding IOUs or promises to pay. (See here and here.) But until now the bank has been obligated to pay the money back on demand in the form of cash. Under the FDIC-BOE plan, our IOUs will be converted into “bank equity.”  The bank will get the money and we will get stock in the bank. With any luck we may be able to sell the stock to someone else, but when and at what price?” NationofChange

If I deposit $1,000 dollars in my local bank, I trust that the funds are safe and protected by FDIC insurance and that even if the bank fails, I will get my money back.  Under the plan listed above, we may not even be able to fall back on the FDIC insurance coverage.  The FDIC-Bank of England plan would supersede our FDIC coverage and we would be relegated to become a “shareholder” in the failing bank or its successor entity.  Let me see if I understand this scheme.  The bank who is failing due to mismanagement or due to risky investments could steal my funds and force me to accept stock in a company led by poor businessmen with an even poorer business record!  If you are brave enough, check out the full FDIC-Bank of England plan here.

Cyprus wasn’t the only place where a bankster grab of deposits was put into place or is being discussed.  It is being discussed in New Zealand as well.  “New Zealand has a similar directive, discussed in my last article here, indicating that this isn’t just an emergency measure for troubled Eurozone countries. New Zealand’s Voxy reported on March 19th:

The National Government [is] pushing a Cyprus-style solution to bank failure in New Zealand which will see small depositors lose some of their savings to fund big bank bailouts . . . .Open Bank Resolution (OBR) is Finance Minister Bill English’s favoured option dealing with a major bank failure. If a bank fails under OBR, all depositors will have their savings reduced overnight to fund the bank’s bail out.”  NationofChange

To be clear, this joint FDIC-BOE plan would need enabling legislation to be passed before it could become the law of the land.  However, the bankruptcy laws have put unsecured creditors, which depositors would be labeled under the plan, lower in seniority to the claims of derivative counterparties which would mean that the very parties who are causing the bank to fail, could collect before the innocent depositors.

“In the US, depositors have actually been put in a worse position than Cyprus deposit-holders, at least if they are at the big banks that play in the derivatives casino. The regulators have turned a blind eye as banks use their depositaries to fund derivatives exposures. And as bad as that is, the depositors, unlike their Cypriot confreres, aren’t even senior creditors. Remember Lehman? When the investment bank failed, unsecured creditors (and remember, depositors are unsecured creditors) got eight cents on the dollar. One big reason was that derivatives counterparties require collateral for any exposures, meaning they are secured creditors. The 2005 bankruptcy reforms made derivatives counterparties senior to unsecured lenders.”  NationofChange

This so-called plan has been labeled a wealth tax in Cyprus, but the United States banks hold the deposits of the poor and middle class and those deposits would be at risk if this type of plan is actually activated.  If this type of plan was ever activated or authorized by Congress, why would anyone ever deposit their funds in one of the major banks that could be at risk of failing due to risky derivative investments when those very deposits could be at risk?  If the bank files for bankruptcy after depositors funds are confiscated, would depositors be left out in the cold entirely?

This type of bank bail out is an end run on depositors and on the American public.  I can only guess why the corporate owned mass media has not been carrying this story.  I do not think that I would every put any money in any of the big multi-state banks in light of this potential nightmare of a bailout.  I would love to see the Senate hold a hearing to question FDIC officials on this joint plan.  While the wealthy use the banks, a good portion of their wealth is in other investment vehicles and therefore the brunt of the bailout could be borne by you and me.  Of course the banks will claim that we would receive stock in lieu of the confiscated funds, but can you pay your mortgage bill with stock from a failing bank?

What would you do if your bank confiscated your hard earned deposits to pay their bills?  What happened to taking personal responsibility for their mistakes?  Too big to fail, too big to jail and now, too big to cover their own losses!  Is it any wonder that the banks want no part of Dodd-Frank and the Consumer Protection Agency?

145 thoughts on “Could the Banksters Grab Your Bank Deposits?”

  1. Bron,
    I almost forgot. It was the banks themselves that wanted the bailouts and came to the Fed and Bush on bended knees. The market was not going to “absorb” the failed banks as you suggest.

  2. Bron,
    The banks gambled the money away. That wasn’t government’s fault. I don’t disagree that TARP should have been initiated, but I would have prosecuted the banks that broke the rules. You may want to double check and see who started TARP to begin with. If regulations hadn’t been erased that prevented this kind of gambling, we wouldn’t have had the problem to begin with.

  3. rafflaw:

    if the government wasnt involved there would have been no bailouts and the people who ran the banks would have been jumping out of windows or working at McDonalds by now. But instead they are at their clubs drinking gin and tonics and talking about how stupid government is and how America is a great country [in sarcastic tones] because they can screw the pooch and still be on top of the world.

    In a free society, they would not be trusted to run a 7-11 again but in our crony fascism society they are treated like kings for delivering tax payer money [loot] to the corporations.

    So with all due respect, government is the problem and more government isnt going to solve it.

    No disrespect intended but you and others who think like you do are the reason we had the bail-outs to begin with. People who think like I do were willing to let the market work to absorb the failing banks but Bush/Paulson/Greenspan thought they knew better and did TARP which was a manifestly bad idea.

    They said they did it to save Main Street, what they really did it for was to save the fortunes of a handfull on Wall St.

    Liberals always talk about helping the little guy but support the ideas that always help the big guy, why is that?

  4. Bron,
    with all due respect, that is the exact opposite of what needs to be done. The banksters who are to big to jail or fail are pushing for these kind of bailouts. If the government isn’t there to control this kind of scary bailout plans, who will?

  5. to check the banks power, you need to get government out of banking. Quit insuring deposits and quit regulating banks and make sure people learn how to read financial statements so they can know which banks are well run and which arent.

    Let the citizens check the power of banks with the power of their pocket books and knowledge.

    The only reason the rich have so much power is because government is in bed with them.

  6. Snyder of the Economic Collapse, Gerald Celente of theTrends Journal, Max Keiser, Alex Jones, Paul Craig Roberts, Michael Hudson, et al have been telling this story for years. Get ye to a Credit Union, and while you’re at it: TO THE BARRICADES! Just sayin’. Over and out.

  7. lotta,

    Yeah … Glass–Steagall but Glass-Steagall is more often the term used to refer to the portion of the Act that limited commercial bank securities activities and affiliations between commercial banks and securities firms. Senator Glass was the one who was most concerned with “speculative” bank activities. Representative Steagall was mostly concerned with a federal system of bank deposit insurance. Both were democrats, one from Virginia and the other from Alabama. Lots of repeals and replacements since then.

    It did extended federal oversight to all commercial banks for the first time and provided real and measurable stability for the decades it was in force.

    Had the fools in Washington, including Clinton, left things alone, we would all be in much better shape. They fixed something that wasn’t broken and opened the gates to the greedy. Da*n fools.

  8. Congratulations, raff. Stuart Varney is a well paid host on Fox Business News.

  9. Blouise, I sure hope he got paid for his statements, he was doing a lot of smiling , I don’t think he took his own statements personally. Correct me if I’m wrong but wasn’t the the ’33 law the one that separated investment from commercial banking? Wasn’t that modified or repealed during Clinton’s tenure? I haven’t looked it up yet but I recall the deed that led to ’08 being done during the Clinton years. Lol, please correct me if I’m wrong, how will I know to have a grudge against if I don’t have the facts? 🙂

  10. You are right Nal. That maybe why this FDIC-Bank of England plan was created.
    Cris,
    Thank you for your Italian perspective of this issue!

  11. Here in Italy it already happened. Before the acceptance of Italy in the Euro gropup, Mr. Amato, at that time head of a “technical” government (this is a term invented by ours politician when there is no voted government in charge) robbed 0.6% of all the private owned bank deposit. And now? no later than 6 months ago Mr. Monti, once again head of a technical government, devolved 4billion of tax money (collected from first house property tax) to a bank that, as of today, is worth less than half that money.. and we are expecting something Cyprus styled to happen.. time are getting tough and tough every day.. I started to prep because I was affraid of natural disaster.. now I am more concerned of bank disaster..
    Take care
    CV

  12. “Varney is a trusting soul is he not?” (lotta)

    lol … I suspect he’s paid for counterpoint

  13. Raff,

    Sticking it to the taxpayers under Dodd-Frank doesn’t appear to be an option anymore. The Bank of North Dakota is the only state-owned bank in the country. May be time to add some more – for those who at least want to maintain our principal.

  14. They could grab our money but while Americans have unlimited access to firearms and transportation it would be suicidal, and they know it.

  15. Elaine,
    Thanks for the 2009 Salon article. I believe it was written prior to the changes in the bankruptcy laws.

  16. Nal,
    thanks for including the clip from Fox News. It was a pretty crazy day. Thanks to all for their good wishes. Since I have a face for radio, I thought it made sense to decline the request. It was also nice to hear Prof. Turley’s blog site get a plug on the air.

    I do think Mr. Varney was wrong to state that it could not happen here. As Nal stated earlier, if they could stick it to the taxpayers under TARP, it would be an easy vote for Congress to save their friends a second time. I don’t know if it is likely, but the FDIC-Bank of England plan is one scary document.

  17. You know, back in the day, sometime in 1766, our forebears were attempting to point out certain facts to the Parliament of Great Britain as they pertained to the constitutional order under which we were then presently living. Boston was a garrison town thanks to the Quartering Acts and the Townshend Acts were rumored to be coming (Revenue Act of 1767, the Indemnity Act, the Commissioners of Customs Act, the Vice Admiralty Court Act, and the New York Restraining Act among others).

    The House of Representatives of Massachusetts pointed out to the King and Parliament – “A Power without a Check is subversive of all Freedom.”

    Down the road a bit, as a reaction to the Great Depression, we passed The Banking Act of 1933 and extended federal oversight to all commercial banks for the first time … a Check on a Power, if you will. I believe we can safely assert that that Check has failed miserably and the Power banks exercise is deeply subversive to our Freedom. If we are to reclaim our Freedom to do with our money as we please, it is time to put in place firm Checks on the Power of banks.

    What was old is new again.

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