How to protect yourself from a bank bail-in (in Greece, Cyprus, or anywhere)

Written by Andrew Henderson
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Dateline: Kuala Lumpur, Malaysia

We frequently discuss that the idea of “wealth” is subjective.

In tough economic times, a recession can be defined by your neighbor losing his job, and a depression defined as you losing yours.

There are all sorts of analogies we could make to explain that defining “wealth” or “being rich” is very hard to do. Even more so in a western world that largely lives paycheck to paycheck with no real wealth.

As a lifelong entrepreneur who has always had to pave my own way, I’ve never connected with the idea of living in hope of another paycheck from a boss or the government fourteen days later. Sadly, those that do think that way have seen some tough times in recent years.

And those who follow the same way of thinking when it comes to their wealth are about to get screwed… yet again.

With the madness surrounding Greece and the potential “Grexit”. Six out of ten Greeks voted to say “we won’t change anything in order to pay our bills”, and break off.

Of course, they didn’t want to give up the use of the Euro currency. Greece is just the latest example of a country that wants to treat their financial system like a buffet: one from column A, one from column B.

The result, for the few wealthy people who didn’t see it coming, could be disastrous.

The Financial Times has suggested that the central bank in Greece could impose a bail-in on anyone holding as little as €8,000.

As detractors to the article point out, the European Union is supposed to protect bank deposits up to €100,000. That is a condition that every bank in the entire EU must offer.

For some reason, however, the media still doesn’t get that governments are quite capable of breaking their promises.

One media outlet suggested that a bail-in…

…wouldn’t work because it doesn’t solve the problem. As noted, there’s almost no accounts with more than the insured amount in them left. So, all deposits are therefore guaranteed, up to that €100,000 by the Greek state. So, if the banks go bust the Greek state has to make all depositors good and whole.

Um, excuse me, but the government doesn’t HAVE to do anything, any more than politicians in the Land of the Free have to follow the Constitution any more than just paying it faux homage at pep rallies.

In Cyprus, the government determined that anyone with more than €100,000 was disposable, and so was their money. Anyone – including small businesses – with more than that rather small amount saw their money frozen indefinitely.

In essence, the government came in and set an artificial ceiling and called everyone above that ceiling “rich”.

That ceiling could be in the mere four figures in Greece, and the government doesn’t need anyone’s permission… certainly not if the country moves forward with its plans to give Europe the middle finger.

What protections will the European Union offer Greeks if they get bounced out of the union and revert to the Greek drachma?

And therein lies the problem with keeping one’s assets in their home country. The alleged protections in place can change on a dime.

The smart money in Europe has long been moving away from European banks to places like Singapore. I discuss this in my book, The Best Offshore Banks.

I’ve been in rooms with gold guys and bankers who have told me that their clients are eager to move large sums of cash out of Switzerland in particular. They just can’t trust the place.

It shows how quickly things can change.

For me, Europe is an emerging safe haven in some ways. Recession there, coupled with a resurgent dollar as of late, has made real estate in some emerging countries dirt cheap.

If you’re a US person or Australian or Nigerian, there are some banks in Europe that haven’t gone totally mad. We cover those in my book, as well.

That said, if you LIVE in Europe, your general view should be to see the place as a toxic wasteland of politicians waiting behind every corner to re-write the rules.

That can happen anywhere. Right now, it’s happening in Greece. Where it will happen next is anybody’s guess, but I can guarantee you that it won’t be the places like Luxembourg that the mainstream media is suggesting.

What I can assure you is that if you think your money will be protected because you’re “not rich”, you are likely wrong.

Having €8,000 stashed away hardly makes one rich, yet that may be all the money that Greeks are allowed to keep if the most imposing of bail-in plans comes to fruition.

The reason that the amount is so low is out of necessity. The smart money, as I say, has been fleeing Europe and Greece in particular for six months now. Anyone in Greece that possesses substantial wealth should hardly be surprised at what has happened.

That means that there are few bank accounts with more than €100,000 in them, making the government’s job at defining what wealth can easily be confiscated harder.

Acting in self-interest to protect your money is the only way to protect yourself from the latest government bail-in. That means doing a few things:

1. Moving at least a substantial portion of your cash on hand to an offshore banking jurisdiction, even if you are currently living or banking in a safe haven.

2. Keeping your bank accounts under any government deposit insurance limit. Governments in the west have already fired the first shot across the bow that they won’t even honor their own limits in times of crisis, so it makes sense to at the very least divide your money across enough accounts so that it does not exceed those limits.

3. Keep cash or gold on hand for use when the ATMs where you live go dry during a bank run.

4. Never say, “it can’t happen here”.

Because it can.

Andrew Henderson
Last updated: May 21, 2020 at 3:52PM

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4 Comments

  1. Mik Sip

    Why weren’t cryptocurrencies mentioned? Socking some money away in a good crypto like Bitshares or Dash would be an excellent way to keep the governments prying eyes and greedy fingers at bay.

    Reply
  2. Dan

    Great article and has left me with more investigating to do (which I like). You’ve given options that now need to be looked at. Agree with the comment above about Cryptocurrencies but if BitCoin can be hacked several times in years (which they have) that doesn’t fill me with confidence either.

    Reply
  3. Harlen

    whole Life Insurance policy and the 72J plan has been mentioned , where to put your money. What do you think?

    Reply
  4. Harlen

    what is the 702J plan?

    Reply

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