A New Meaning to Special Drawing Rights?

Most people think that “special drawing rights” have something to do with the IMF and don’t affect anyone below the top levels of the banking industry and heads of state if they have ever even heard of them. We here in the Whiskey Bar not only know what SDR are but we keep a leery eye on banksters and pranksters in general.

Some of us advised long ago pulling a big hunk of cash out of the bank every Friday afternoon just in case yours is “it” in the next round of “Friday Surprise.” No harm done, you can always redeposit on Monday if the doors are open, and interest paid on checking and savings accounts is so close to infinitesimal that withdrawals make a very sensible and economical insurance policy. Mind, we are regarded as a little paranoid, and sometimes we get superior smiles when we point out that the suggestion has been made that SWAT teams be put in banks to insure orderly withdrawals…and then they doubled the amount covered by the perilously near insolvent FDIC…and today there was confirmation of a twist on other “precautions,” although short of a bank “holiday.”

What if someone refined SDR on the personal level to mean “the ability to cash a check at your local bank?”

John Carney reports in Business Insider:

“Effective April 1, 2010, we reserve the right to require (7) days advance notice before permitting a withdrawal from all checking accounts. While we do not currently exercise this right and have not exercised it in the past, we are required by law to notify you of this change,” Citigroup said on statements received by customers all over the country.”

Some of us are cynical enough to suppose that means “seven business days,” which is actually nine days for almost all banking institutions. And that Citi wouldn’t disclose this information if it were not required to do so. And that this means that when a Citi customer walks up to an ATM during such a ban on withdrawals it isn’t going to disgorge money upon swiping a debit card and entering a PIN number, either. Gee…it may well mean that Citi will not honor checks written to the electric company, your mortgage company, your country club, or your gym, either. You will notice that their bland statement does NOT say that you will not merely be denied the right to write a check for cash. It uses the inclusive “withdrawal from all checking accounts.” That “ALL” in there may not be a bank holiday but it is certainly more than a lost weekend if you are unable to access your funds.

Before continuing I’m going to put in a plug for my favorite bank, First Convenience. They actually mean it! I have my choice of two locations nearby, inside WalMart and in the Kroger’s grocery store we frequent, and at least one other farther away. (BoA has one in the twin cities. Wells has one.) FC is open from seven a.m. until seven p.m.–six days a week! The slackers are only open from noon until four on Sunday. THIS is real convenience for a night owl, being open hours I’m in town in locations most of us visit anyway.

Their hours and locations are not the only reason I cherish First Convenience. I don’t think they are likely to go under, and I really like being on close personal terms with my bank manager who is available between those vital hours of normal closing time Friday and possible opening hours on Mondays following at traditional banking institutions. I always stop and pass time with Kenny and the girls, even when I have no business. Perhaps at that level they won’t know anything interesting before those who are watching the monetary situation do…but perhaps they will. I am informed that there are rules and matters bank managers and brokers are forbidden to tell clients, but I think I’m empathic enough to recognize a shattered bank manager or that if he said on Saturday, “Mrs. T! You didn’t make your usual Friday withdrawal!” when we both knew I had, that I’d “get” it, no rules broken. As Robert Heinlein observed, “Sure, the game is rigged, but you can’t win if you don’t play.”

This is banking as I knew it 50 years ago; I called Kenny a couple of weeks ago to be sure he had enough spare cash to pay for the bulldozer we bought before I sent the former owner over with my idea of a pretty big check. Storefront banks don’t always have big piles of bills in their small vaults and they appreciate a little advanced notice to accomodate customers. He did, big smiles all around. If YOU can’t get your bank manager on the ‘phone immediately, try First Convenience. (No, I don’t own stock in FC.)

Here is another interesting aspect: “‘The seven day notice policy only applies to customers in Texas,’ Ira Stoll reports at The Future of Capitalism. ‘It was accidentally included on customer statements nationwide.”

How very interesting. Only Texas is being targeted? Accidentally included? Does all their billing come out of one location, such as Dallas? Unlikely. Posssible, of course.

“Whatever the explanation, it doesn’t exactly inspire confidence in Citi,” Stoll writes. “But it’s hard to believe a bank would be sending out a notice like that on its statements.” No kidding. Are we to suppose that the preponderance of Citi’s funds are in checking accounts in Texas?! Well, Texans certainly brag about how rich (other) Texans are, and we have more than our fair share of millionaires and a billionaire or three, but I can’t see that sequestering local funds for up to nine days would solve a bank-shaking event. It would, of course, buy a considerable hunk of time.

This “mistake,” if such it is, does allow Citi to take the policy nationwide at any time. “You were informed,” they can say loftily.

Let’s go back to that intriguing, “While we do not currently exercise this right and have not exercised it in the past…” Hmmm. Passing lightly over the fact that few of us would entrust our capital to banks unwilling to hand them over on demand…For years banks have put holds of up to two weeks on deposits (a length of time that may have made sense when such things were handled by snail mail instead of electronically), which can be justified by the supposition that not all bank drafts will be honored by the fiduciary institutions upon which they are drawn. (Remember to tell your kids to cash local checks at the bank upon which they are drawn; sometimes you have to settle for cashier’s checks instead of cash if the amount is large, but your bank should accept that at face value since a CC guarantees the funds. Amazing what our children don’t know and might need to. I learned recently how very easy it is to change where your Social Security check goes–at least if you do it the way I did, which was to waltz into Kenny’s office and tell him what I wanted. One ‘phone call from him, done while I waited, was all it took. Confirmed, checks now going to FC.)

We have been tracking the problems of Citi–as well as BoA, Wells, and others–and marveled over a giant bank that made a “profit” only because of the bailout and used half of those profits for bonuses.

I consulted a friend in the industry and got this back: “No light…I imagine it is just precautionary should a bank run happen for whatever reason. Have bonus figures been released? If not, this may be the concern. Texas is a strong market for Citi. Citi is also very smart with holding money to maximize interest. For example, Citi chooses to do 401K matches annually in one allotment vs matching each paycheck deposit.” Hey, a few dollars here, a few dollars there, if you’ve got enough employees you’re talking real money.

If you can keep the float on all deposits even once for “seven days” that ought to pay the champagne bills, at least.

Still…”only in Texas.” There is something very odd going on, and perhaps it is “nothing” more than Citi being ahead of the curve and others will follow. Perhaps the regulation which obliges Citi to inform customers that it may or may not hand over their funds on demand stipulates a particular warning period.

Curioser and curioser…what forces a course like this, one which seems sure to cause a slump in share value and a rash of account closings?

Big banks make me nervous these days. At present I’m using small, local chains of fewer than a dozen banks that do not make loans on strip malls or MacMansions, and a military credit union that doesn’t do so, either. At the very least I think we should all scan this month’s statements from all banks carefully. If your bank has the gall to tell you that it has the authority to decide, capriciously, not to disgorge your funds on demand, I’d find another bank.

Citi may be in bigger trouble than we have deduced or they may be first with an idea intended to be a boon to bankers that bodes ill for our ability to conduct business as usual. Or, just possibly, this has something to do with the Fed’s decision (see my archived “They’re Going to Kill the Fed”) to stop purchasing treasury bonds on 30 March, 2010.

Gold, silver, and energy still look like the best places to stash our simoleons, but a hefty deposit under your mattress might be very comforting any time after April 1st if you’re still a Citi customer by then.

Linda Brady Traynham

February 25, 2010

P.S.: We have always suspected that the fall of the dollar could be set off by some slight event; usually I put that as “China turning loose the butterfly.” The only way I can account for Citi’s announcement on what I know (other than the article referenced above) is so absurd I hesitate to “pen” it. I am really a very modest lady, for all my eccentric, colorful ways, and moving and shaking in my life usually means letting the fast-growing goat girls in to be fed and shaking up a gallon of calves’ milk replacer if we’re out of goat juice, or a little belly-dancing practice.

It would be interesting to know when the statements were printed, because no matter how ludicrous it sounds (and it really does), the fact remains that I wrote an article on the Republic of Texas for W&G and in less than a week my “count” on Google has more than tripled, and now Citibank has declared that slightly over a month from now it may or may not let Texans have money out of their checking accounts!

I guess it COULD be that the “right” person read the case for reclaiming Texas independence and decided the “right” to freeze all accounts for a week might be useful sometime. That is about as likely as me writing the economic equivalent of the Harry Potter series, but strange things happen in this world. Or it could be that Sherlocke Holmes is always right. If we can eliminate everything else, what remains, no matter how unlikely, is the truth. My money’s on devaluation of the dollar being right around the corner, but it is always possible that we’ll sing Judas’ song from Jesus Christ Superstar: “The world’s in ruins around us, and all because of you.”

I don’t think this is an April Fool’s joke. In all likelihood the analysis was right in the article on declaring the Fed–a private corporation–bankrupt in the near future. Too big to fail? Nonsense. It already has. ROFL…either way, maybe we’ll get a Nobel in Economics. LBT