Time To Perform Your Own Bank Stress Test
Things, around the globe, are starting to get real.
Last week and throughout the weekend the Royal Bank of Scotland inconvenienced thirteen million customers of NatWest, Ulster Bank and RBS. Customers were unable to use bill payment, ATMs and debit cards nor could they even transfer their funds to another account at the same bank.
With ATMs still not functioning into the weekend, bank and branch locations were then staffed on Sunday for the first time in the the bank’s history. Six days after the problems started, the ATMs were still not functioning.
While the official story is that the bank had a problem while performing an upgrade, rumors circulated that this was the result of cyberfraud or as a preventative measure to the threat of that (Update: and the rumors are even more plausible now that a massive fraud incident has since been exposed).
Others suspect a different underlying reason: “How do you know that this is just a ‘computer glitch’ and not something more serious, like, for example, the bank being actually bust?” writes Karl Denninger, author for the Market-Ticker blog.
There has been a multi-week silent bank run in Greece, Spain and Italy and this week another country, Cyprus, requested a bailout for its banks. Regardless of whether or not it was just coincidence that this specific withdrawal problem occurred at the same time as these events, systemic bank insolvency around the world is something occurring right before our very eyes.
If your bank had a problem where suddenly no ATM debit card transactions were possible (or worse), how much of an impact would that have on you and your family?
Or take the scenario where simply just a daily maximum withdrawal limit is imposed — at a level lower than you need. Would there have been any steps that you could have taken in advance to prepare?
Regardless of your bank’s solvency, they simply do not and cannot prepare for a surge in the amount of cash withdrawals. Already there are anecdotes telling of banks not allowing withdrawals exceeding an amount in the range of two thousand dollars (and even lower levels with funds in savings accounts). RBS wouldn’t be the first bank to invent an excuse or impose a more restrictive policy to deflect blame or hide the underlying reason their customers don’t have access to their funds.
Humans are wonderful procrastinators and we share the idiosyncratic belief that once we start to smell smoke that somehow we will be the lucky ones who can make it out the exit a step ahead before the crowd that might trample us. We can envision the steps for how we would proceed in such a scenario but we have never really practiced the methods to have even a clue if the steps might actually succeed.
Perhaps the RBS crisis provides the justification for us to prepare — to do a dry run.
Specifically, here is the challenge. Consider the scenario that your bank is no better than RBS and for the next seven days (at least) you and a good third of everyone around you will be denied access to your bank account — no checking, no ATM, no debit card, no online bill pay, and no wire transfers. Except for this scenario you happen to be exceptionally prescient and know that you have a few hours before this actually happens.
Do you, at this very moment, have several thousands of dollars of “available funds” at your bank? Does your bank serve requests for larger cash withdrawals or will they take the opportunity to educate you on some policy that they have instituted where even a $2,500 USD withdrawal request will not be honored in full?
Do you know for sure? Have you ever tried? Shouldn’t today be the day you find out?
Some have made it their life’s mission to plan for much worse drastic changes than just banking disruptions, and others have been prepared for all contingencies for quite some time. Most of us have not even begun to consider such situations.
The funds you withdraw today can simply be re-deposited right back into your bank account following this test (we don’t want to trigger a bank run), so it isn’t like today is the day you have to figure out what to do with a huge wad of cash (and possibly expose yourself to risks to your personal safety).
Going through this exercise will help you though to know just how perilous the situation is so that you can start considering how to prepare accordingly.
Just coming to the realization of how unprepared we are is something stressful in itself.