Bank disallows cash withdrawal from current account

Shield

Hi everyone.

I'm looking at the short list of options available to Greece, as the government have, so far, refused to impose more austerity upon its people.

One possibility being toyed around with is restricting the amount of money people can withdraw from their accounts, as a trouser-soiling €1.2 billion was withdrawn from banks last Friday alone. I don't claim to know a lot about banks or finance, but that seems like a huge amount of money to be taken out in just one day.

My question is: Are banks allowed to do that? Are there not laws somewhere that either allow you access to your money on demand (within normal opening hours and conditions)? If there are no laws there, are there laws that prevent banks from withholding your money without a court order?

I ask relative to Ireland. If someone knows what the laws are in Greece, fair enough, but ideally I'd love to know if this could realistically happen in Ireland?

Thanks in anticipation of any answers.

-Shield.

Tow

It can happen here. However steps were put in place to insure ATMs did not run out when the bailout was announced, as it would have caused more 'panic' withdrawals.

They could also wake up in the morning to find the government took money from their bank accounts. It happen in Argentina and happened here from our pension accounts.

conorh91

Banks already set daily cash withdrawal limits, in-branch withdrawals and debit card withdrawals. AIB already came under criticism for having unilaterally amended this daily limit in the recent past.

The terms and conditions of your current account facility probably state that the bank may, as a security measure or in exceptional circumstances, limit daily access to cash.

The legal system of Cyprus is very similar to that of Britain and Ireland, and in 2013, not only did its banks implement drastic daily withdrawal limits, but they also appropriated customer deposits in excess of €100,000 in exchange for bank shares. Cypriot banks did this with statutory backing, and I see no reason why the same interventions could not be effected in Ireland.

It should also be noted that as of January 2015, the 'single rulebook' on failing banks, also called The Bank Recovery and Resolution Directive, equips financial authorities with drastic new powers to intervene to prevent banks from failing.

Having said that, Ireland's Deposit Guarantee Scheme is also derived from a European directive, and Irish deposits are protected up to €100,000.

If the Regulator determines that a bank has failed to pay deposits which are due and payable within five working days, then the Regulator may make a determination against the bank.

The Deposit Guarantee Scheme will then ensure that the repayable amount is available to the customer within 20 working days. The DSG must provide sufficient cash to cover living expenses within five working days.

See EU Directive 2014/59/EU

Wanderer78

im getting the feeling, you're damned if you do and damned if you dont go with the imf!

anvilfour

Shield wrote: »

Hi everyone.

I'm looking at the short list of options available to Greece, as the government have, so far, refused to impose more austerity upon its people.

One possibility being toyed around with is restricting the amount of money people can withdraw from their accounts, as a trouser-soiling €1.2 billion was withdrawn from banks last Friday alone. I don't claim to know a lot about banks or finance, but that seems like a huge amount of money to be taken out in just one day.

My question is: Are banks allowed to do that? Are there not laws somewhere that either allow you access to your money on demand (within normal opening hours and conditions)? If there are no laws there, are there laws that prevent banks from withholding your money without a court order?

I ask relative to Ireland. If someone knows what the laws are in Greece, fair enough, but ideally I'd love to know if this could realistically happen in Ireland?

Thanks in anticipation of any answers.

-Shield.

Hi Shield,

This is an excellent question, capital controls are an option and governments can impose them, unpopular as they are - Cyprus imposed this during their own crisis and only recently lifted them.

(Incidentally I think it was this event which caused a huge spike in the value of the Bitcoin as people quickly realised they could buy them locally and transfer them abroad - cryptocurrencies know no borders!)

It's a bit of a chicken and egg scenario because if enough money is withdrawn from the banks, it might precipitate the very crisis they're trying to avoid!

anvilfour

I suppose the moral of this story is to make sure you put your savings in a safe place... Swiss bank account anyone?

Wanderer78

anvilfour wrote: »

I suppose the moral of this story is to make sure you put your savings in a safe place... Swiss bank account anyone?

hole in the back garden i think

hullaballoo

I think the lesson is that cash is a terrible investment, tbh. Practically every other non-perishable commodity retains its value better than cash in a financial crisis.

anvilfour

hullaballoo wrote: »

I think the lesson is that cash is a terrible investment, tbh. Practically every other non-perishable commodity retains its value better than cash in a financial crisis.

Do we have to give up on cash altogether? My issue with commodities has always been the same as Warren Buffet's* in that a bar of gold or a mountain of coffee can't make any more money, it's simply subject to supply and demand.

Compare and contrast this with investing in an index fund which tracks the stock market e.g the S&P 500 you can see dividends from shares and company profits causing your cash to grow.

I take your point that inflation can erode the value of cash of course, I just wonder if it might be better to invest in a relatively stable currency like the dollar.

*sadly the resemblance ends there!

anvilfour

Wanderer78 wrote: »

hole in the back garden i think

You could do worse!

Wanderer78

anvilfour wrote: »

You could do worse!

much much worse

anvilfour

Wanderer78 wrote: »

much much worse

Of course if you buried £10,000 in a hole in the garden 30 years ago and dug it up today, it would have lost around two thirds of its purchasing power (see 'burgernomics' for more info).

If instead you'd invested £10,000 in a passively managed index fund tracking the S&P 500, you'd have seen an average of 6% growth on your investment adjusting for inflation ; your money would almost have doubled in value in real terms by today.

However there would also have been nailbiting times like the Stock Market crash of 1987 (see 'Black Monday') and your investment would have gone down in value as well as up, you maybe would have lost a lot of sleep compared to knowing the cash was safely stashed away!

Wanderer78

anvilfour wrote: »

Of course if you buried £10,000 in a hole in the garden 30 years ago and dug it up today, it would have lost around two thirds of its purchasing power (see 'burgernomics' for more info).

If instead you'd invested £10,000 in a passively managed index fund tracking the S&P 500, you'd have seen an average of 6% growth on your investment adjusting for inflation ; your money would almost have doubled in value in real terms by today.

However there would also have been nailbiting times like the Stock Market crash of 1987 (see 'Black Monday') and your investment would have gone down in value as well as up, you maybe would have lost a lot of sleep compared to knowing the cash was safely stashed away!

interesting alright. ive lost a packet on investments myself but i kinna knew what i was getting into. its a gamble really. the financial system is very volatile at the best of times but im hoping in the long run, it ll work out for me

alb

anvilfour wrote: »

Of course if you buried £10,000 in a hole in the garden 30 years ago and dug it up today, it would have lost around two thirds of its purchasing power (see 'burgernomics' for more info).

If instead you'd invested £10,000 in a passively managed index fund tracking the S&P 500, you'd have seen an average of 6% growth on your investment adjusting for inflation ; your money would almost have doubled in value in real terms by today.

However there would also have been nailbiting times like the Stock Market crash of 1987 (see 'Black Monday') and your investment would have gone down in value as well as up, you maybe would have lost a lot of sleep compared to knowing the cash was safely stashed away!

Current value of a $10,000 1989 investment in Nikkei 225: -1.87%

Even indexes don't guarantee you'll make gains, even over times frames of multiple decades. The truth is that everything is a gamble in terms of storing or increasing wealth, doing something is a gamble against counter party risk and/or markets going down, doing nothing is a risk (certainty?) of losing value due to inflation. The most sensible is to plan your investment time frames, and choose a diverse enough range of investments that fit that timeframe and have estimated risk levels that you find acceptable.

Victor

hullaballoo wrote: »

I think the lesson is that cash is a terrible investment, tbh. Practically every other non-perishable commodity retains its value better than cash in a financial crisis.

Tell that to Greek shoppers next week.

At times of zero / negative inflation (2014) or stock market / property crashes (2008), cash can be king.

C.K Dexter Haven

Wanderer78 wrote: »

hole in the back garden i think

anvilfour wrote: »

Of course if you buried £10,000 in a hole in the garden 30 years ago and dug it up today, it would have lost around two thirds of its purchasing power (see 'burgernomics' for more info).

If instead you'd invested £10,000 in a passively managed index fund tracking the S&P 500, you'd have seen an average of 6% growth on your investment adjusting for inflation ; your money would almost have doubled in value in real terms by today.

However there would also have been nailbiting times like the Stock Market crash of 1987 (see 'Black Monday') and your investment would have gone down in value as well as up, you maybe would have lost a lot of sleep compared to knowing the cash was safely stashed away!

The oldest financial lesson is actually written in the bible- 7 talents parable anyone?

Shield

Thanks for those replies.

I already knew about banks imposing daily limits because Ulster Bank do that here. The daily limit is £1,200 at last look.

I'm more interested in the actual law or rule that prevents you from accessing your money if you want it.

For example, let's say that the Ulster Bank get into a bit of bother, and introduce an emergency daily limit of £100 cash withdrawal on all personal and savings accounts. The previous limit of £1,200 was understood and accepted by all customers as a security measure, but now there's a line of people waiting to withdraw £200 and £300.

What legal footing do those customers have? Are there laws preventing banks from doing this? Do banks reserve the right to do it somewhere in the 68-page Terms & Conditions that they know nobody reads?

Or is it a social faux pas to ask the banks for your money in a time of forced austerity?

-Shield.

Peregrinus

There almost certainly is something buried in the terms of the bank's agreement with its customers that allows the bank to do this. Obviously, without actually reading the T&Cs of all the major banks I can't point to chapter and verse, so this exercise is left for the honours students. My strong suspicion would be that the Central Bank requires banks to build this into their customer agreements, since they don't want banks defaulting in the event of a monetary panic.

I'm thinking also that the decision to implement lower withdrawal limits , in reality, is likely to be driven not by the individual banks, but by the Central Bank, which would suggest to the banks that cash withdrawal limits need to be tightened. Whether the Central Bank has the legal power to impose such a decision or not I can't say, but this is an area in which a suggestion would be as good as a decree.

None of this would be unusual. Every regulated banking system will have processes in place for managing monetary crises, and there is no western country where you can't wake up some morning and find your access to your bank deposits is temporarily limited by official action.

I think permanent restrictions - effectively, confiscation of your deposits - would be another matter. Earlier in the thread somebody mentioned the situation in Cyprus, where bank deposits in excess of a certain amount were converted into equity shares in the bank (on the strength of legislation to that effect, not the bank's T&Cs). I haven't looked into this too closely, but my immediate reaction is that there would be constitutional difficulties about doing anything like that in Ireland.

234

One important thing to remember when thinking about this area is what your money actually represents in a bank. Once you deposit your money you lose all property in it. It is no longer your money. Instead you have a contractual right of repayment against the bank.

So when you rock up to the cashier's desk and ask to make a withdraw you aren't saying "Give me my property now." You are asking them to comply with their contractual promise.

Therefore it is perfectly possible to limit the manner in which this promise/right can be used. The easiest way it to have the detail in the terms and conditions when you are opening the account. It's trickier to vary the contract unilaterally later on though it can be done. Far easier conceptually for the government to impose regulations from above as this avoids any difficulties inherent in the contractual relationship between you and the bank.

alb

234 wrote: »

One important thing to remember when thinking about this area is what your money actually represents in a bank. Once you deposit your money you lose all property in it. It is no longer your money. Instead you have a contractual right of repayment against the bank.

This is also my understanding, effectively when you deposit money in the bank you no longer own it, you own an IOU for it from the bank.