Bloomberg: Cash Under Mattress Safer Than a Bank Account?

This is something that has been talked about for awhile now and could certainly be a factor related to major monetary system change. This Bloomberg article actually points out that new rules for bank accounts could make them less safe to hold than cash under your mattress. This is the type of article that most people will ignore, but shouldn't. Below are some quotes, then a comment. As always, readers are advised to read the entire article for full context.

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"With the G-20 summit coming up this weekend in Brisbane, Australia, it might be worth wondering when or whether you can have too much money in the bank.

Citing information from uber-analyst Russell Napier, the blog Zero Hedge writes that Napier is declaring Nov. 16 as “the day money dies.” (That’s their headline, anyway.)

According to Zero Hedge, Napier says the G-20 will announce “that bank deposits are just part of commercial banks’ capital structure, and also that they are far from the most senior portion of that structure,” and as such, following a bank failure, “a bank deposit is no longer money in the way a banknote is.”

"If this is the case, depositors with more on account than would be covered by deposit insurance would find themselves in line with everyone else trying to recoup what they can from an insolvent institution."

“Large deposits at banks are no longer money, as this legislation will formally push them down through the capital structure to a position of material capital risk in any ‘failing’ institution. In our last financial crisis, deposits were de facto guaranteed by the state, but from November 16th holders of large-scale deposits will be, both de facto and de jure, just another creditor squabbling over their share of the assets of a failed bank,” Zero Hedge writes."

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My added comments: 

There is a lot to consider about this article. First, it is interesting we now have a mainstream media source (Bloomberg) referencing the alternative news site Zero Hedge for this story. Next we have the obvious huge news that regular bank accounts become lower tier capital if your bank goes bust. Amounts in excess of the FDIC guaranteed balance probably go up in smoke according to this report.

This is something that people like Jim Sinclair and Jim Rickards have been warning about for a long time now. It is why they advise holding a portion of your assets in some type of hard asset insurance outside the system. So long as there is no crisis at your bank, no one will care about this. But this report makes it clear that if your bank does go under, your regular bank account funds can disappear (like Cyprus). Most people do not believe this would really happen. This article makes it clear that it can happen.

Imagine what this could mean for high net worth individuals and corporations who may have very large amounts in regular bank accounts like this. Amounts far above the FDIC guaranteed limit. A typical large corporation could easily have millions of dollars in such an account. In another widespread systemic banking crisis, this could mean these accounts are fully at risk to be lost for any amount above the FDIC limit.

We will followup on this to see if the G20 summit does produce an announcement like this on November 16th as stated in this article. It will be very significant news in our view if it does happen.

Update 11-16-14: For our followup on this issue, go to this Summit review post and go to "my added comments" at the bottom of this post.