Three reasons why the banking system is rigged against you
If there were ever any doubt about how completely RIGGED the banking system is against depositors, allow me to introduce the following:
Exhibit A: Governments are working to make banks LESS safe
Yesterday an unelected bureaucrat that no one has ever heard of made a stunning announcement that has sweeping implications for anyone with a bank account.
Dombrovskis is Europe’s top financial services official, so he controls bank regulations in the European Union.
He issued a stern warning to global bank regulators yesterday that he is prepared to reject any further plans they might have to tighten bank capital requirements.
This might sound rather dry, but it’s incredibly important.
“Bank capital” is the most critical component of any bank balance sheet.
Capital is like a bank’s rainy day fund; when things start to go bad, a bank’s capital provides a margin of safety to ensure that their depositors’ funds are safe.
Strong banks have ample capital and are able to withstand crises.
Weak banks with low levels of capital collapse. And that’s precisely what happened in 2008.
Most banks across the west had very low levels of capital. They had spent years making appallingly stupid ‘no money down’ loans with 0% teaser interest rates to borrowers with pitiful credit.
When that bubble burst, the banks lost billions of dollars. And it turned out that most of the banks at the time had razor thin levels of capital.
If you’re wondering why, the answer is quite simple: the less capital a bank maintains, the more money it can invest… so poorly capitalized banks tend to make more money.
Lehman Brothers was quite profitable.
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