It is now hard to imagine why banks have branches at all.
They resent their social function because servicing the private individual is a nuisance and an expense. It has no useful money making purpose for them in today’s digital and online age. Thus they close branches, and are now closing cash machines. In certain situations, depositing cash with some banks incurs a fee; such is their intent to discourage its use.
The digital age largely did away with the need for actual cash – today just three per cent of money is cash – and the banks saw a golden opportunity. For as long as we all did not simultaneously want to withdraw our money in cash, they could create computer entries to satisfy demands such as loans, and could then simply handle inter-bank movements of their magic money via their own Automated Clearing System BACS.
Banks also have an accounting system that is unique, in that loans in their balance sheets are shown as both liabilities and assets. Thus their books balance. It is beyond belief. A loan that may not be repaid is allowed to be shown as an asset. Their argument is that the value of the securities they hold, to cover the loans they make, exceeds the value of those loans.
What a dodgy premise that is, as the secondary bank failure of 1973 showed, when the value of property used as security for loans was firstly found to be optimistic, and then often worth less than valuation when sold to repay those loans. As a consequence, the secondary banking system collapsed.
Another reason for us to be concerned about the banks’ dislike of cash is that they are trying to do away with it altogether, in order to remove it as a refuge for you and me if they are bailed out again. The recent introduction of contactless card payment for small amounts is not for our benefit, it is just one more step in the process of getting rid of cash. Why else would they introduce a system that costs them money to administer?
In a paper produced by the European Central Bank and the International Monetary Fund, the concept of including private bank deposits as part of any bank rescue, and also in support of a country bailed out by the IMF, is being seriously proposed. Depositors’ money would be converted into shares in their bank or their country, and the flight of money as cash – if no cash exists – can obviously be halted. There would be no escape for the private depositor.
This ECB and IMF proposal goes further, and suggests that individuals might also be compelled to donate ten per cent of their assets. The difference between private and state wealth is being quietly abolished.
The banks – who sell themselves as friends and helpers – are very far from that. They are constantly creating ways to exploit their customers, but always looking to be bailed out by government when their schemes go wrong.
Malcolm Parkin is a retired business adviser. He lives in Kinnesswood, Kinross-shire