Your bank is not your friend
It's foolish to think your bank balances are always going to be there for your use, whenever and however you choose.
“When the financial system works, it can be a powerful engine for economic growth.” So said Janet Yellen, Secretary of the Treasury, in a March 2023 speech.
“Financial institutions provide credit that enables families to afford homes, invest in education, and otherwise improve their standards of living,” she continued. “The financial system also gives families and businesses safe places to save, invest, and transact.”
Safe, that is, until your bank decides to evict you.
A New York Times article last week told the stories of several customers who were recently ‘debanked.’ They are among what appears to be an increasing number of individuals, families, and small businesses being booted from their financial institutions.
“Often,” the Times reports, “they don’t have the faintest idea why their banks turned against them.”
While the reporters could not get an answer from banks about how often such account closures occur, they did garner a sense of the increased ‘red flag’ activity from federal data.
By law, banks must file a “suspicious activity report” (SAR) when they see transactions or behavior that might violate the law, like unexpectedly large cash transactions or wire transfers with banks in high-risk countries. According to Thomson Reuters, banks filed over 1.8 million SARs in 2022, a 50 percent increase in just two years. This year, the figure is on track to hit nearly two million.
Federal data on the types of SARs that banks file show what they worry about most. Last year, banks filing SARs tagged categories like suspicious checks, concern over the source of the funds, and “transaction with no apparent economic, business or lawful purpose” most often, according to Thomson Reuters.
In the UK, a 2023 freedom of information request revealed that just over 45,000 accounts were shut by banks in 2016-17. By 2021-22, that number had climbed to over 343,000 accounts – meaning more than 1,000 accounts are closed every business day.
Red flagged for no apparent reason
The Americans profiled in the Times’ story are likely no different from any of us.
For example, a couple who sold their house in New York and moved to Idaho shifted large sums between their various Citibank accounts — related to their sale, down payment, and mortgage payoff. Then, without explanation, Citi shut all their accounts, including checking accounts and credit cards. They were left wondering why and how it might impact them in the future.
A student from Nigeria, who had been a Chase customer for 10 years, began receiving wires in 2018 from his parents back home to help him cover rent while waiting for federal employment verification to accept a full-time role at Morgan Stanley. That summer, Chase sent him a letter saying his accounts would be shuttered, likely because they suspected a potential scam.
A man who was renovating a house he bought in New York in late 2016, withdrew cash multiple times from one of his Citi accounts to pay his contractor. His bank then called to ask why he was making repeated cash withdrawals and, on each call, he explained the situation. The customer said he was aware that banks are wary of large transactions in round numbers, but figured he was taking out his own money and using it for a contractor doing visible work.
In each of these cases, a fatal mistake is thinking your bank balances are your money, there for you to use whenever and however you choose.
In reality, your account balance is not how much you own, but how much the bank owes you. If this is news to you, look up ‘fractional reserve banking’ to learn about and better understand how our banking system works.
Turns out you are a creditor to your bank, but somehow they get to define the parameters of the relationship and the fees you will be charged for loaning your money to the bank. Just doesn’t seem fair.
Where are the consumer safeguards?
Some commenters on the New York Times story about why banks are suddenly closing down customer accounts suggested they felt safer that the banks were proactively taking action to prevent fraud or criminality.
But it’s a mistake to think the banks are on your side.
In Britain, people receiving public benefits will soon have their bank accounts checked every month to ensure they are not lying about their savings.
The Telegraph reports:
Under the current rules, the Department for Work and Pensions (DWP) has to individually request details of a benefit claimant’s bank account if they suspect fraud is being committed.
But under the new system, banks will be required to run monthly or even weekly data checks to spot red flags that suggest “risk” of fraud and hand the information over to officials.
People are not allowed to claim Universal Credit if they have more than £16,000 in savings, so a claimant’s bank account that suggests otherwise could trigger a red flag.
An account that regularly transfers money overseas could also suggest fraud.
Some people have been debanked just because they held legal cryptocurrency or gambling accounts. People in Britain who were born in foreign countries have found their accounts shut down, often after making or receiving payments from abroad.
In 2021, Fox News reported that Bank of America may have handed private customer information over to the FBI related to the events of January 6 on Capitol Hill. At the request of federal investigators, the bank combed through customer data searching for people and transactions that fit a certain profile – including renting hotel rooms in Washington D.C. close to the date of the riot, buying weapons within a specified date range, and making certain flight purchases. More than 200 people were reportedly identified as fitting the profile.
In 2022, the Canadian government froze the bank accounts of truckers involved in a freedom protest in the nation’s capital. It also went even further, closing or freezing the accounts and blocking credit cards and crypto wallets of people who made donations in support of the truckers.
These are just some of the examples of how the banking system has been weaponized against you, despite the happy interracial couple, the laughing single mom and baby, and the smiling Grandma and Grandpa you see on bank webpages.
And if you still don’t believe this, definitely google ‘bail-in,’ a concept you should fully expect the next time a system bank falters or fails. Hope you like your bank, because you may end up a shareholder.
But maybe that’s a whole other article.
Thank you for this article. You are very correct.
I used to worked for the world's largest banks. They are not our friends.
They operate in the gray areas without regard to the cost their own customers. They lost their real purpose, to serve the people who entrust their money into them, when Clinton rolled back the Glass-Steagall Act.
Everything is now stacked up against individual consumer.
The government and the financial institutions will operate as they need to preserve if not grow themselves no matter what the cost is at our expense.
I Have just spent hours on to the bank because they have changed the app, but I never got the email .
This is a very timely , thank you