Preparing for a Bank Run?
Out of all the banks it appears that Citibank is in the most trouble. They have just cut customer's daily access to their funds through bank machines.
They aren't alone in cutting access to cash through bank machines. A credit union in Wisconsin has also reduced the level of cash withdrawal allowed.
I just completed transferring an account that took me six weeks to get done. Not only did I decide I didn't want to be in the market, I decided I didn't want my money at a brokerage because of the difference in insurance between a brokerage and a bank. In Canada the bank is government guaranteed whereas the brokerage has their own insurance and I simply do not trust it to be any better than the insurance that covered the mortgage back bonds.
Legally a transfer is supposed to be processed in 5 banking days. My new bank was very good, trying to follow up on the status, but the brokerage totally did not co-operate. I know the new bank manager sent it in 3 times, yet they were telling me they had no record of receiving the request, and then that they don't process transfers, they have to be sent elsewhere, not where I had my account.
I found that completely unacceptable and filed a complaint with the securities commission. I am still waiting for my other account with them to be transferred.
I suppose all those pictures of people lining up around Northern Rock for weeks trying to get their money out spooked me, especially since I had figured there might be bank runs in the next year or two and then there was not one but two with the credit crisis last August. Actually, the second one might not have been a bank run, just a bank bankrupcy where the story featured a 72-year-old man who had $300k frozen and in line to hopefully get it back with all the other creditors. He was lucky he had a son on his account so $200k, not $100k was insured and he did get that out.
The brokerage really spooked me as well because I had figured some the brokers were going to get themselves into big trouble, and the day I was at my bank arranging my transfer was the day the news broke on E-trade have serious insolvency problems and having to do an equity issue for $2.5 billion. I think E-trade is paying the highest interest rate available on their deposits. I wouldn't touch it... And Merrill Lynch had to raise $7.5 billion and they were working over xmas trying to arrange more equity. Nope, I don't trust leaving my money in a brokerage right now.
For the record, from my understanding if a brokerage has problems your cash is at risk, but your securities should be fine, although you would lose access to them for a while and an ability to sell them, until things were sorted out. Losses because of market conditions, and not being able to sell, are not insured.