One of the unintended casualties of the free fall being suffered by banks and the finance sector in general is the increasing lack of good places one can expect to park cash and hard-earned funds.
Many banks, especially in the US and Europe, remain in business only because of extreme measures taken by their host governments by way of direct cash infusions (in tens of billions of dollars and euros) and guarantees. As a result, many people are probably contemplating putting extra cash under the proverbial mattress in anticipation of worse days to come.
The folding up of the Legacy group of banks locally calls to mind a similar spate of bank closures that arose from essentially bad management practices and the tendency of many bankers to treat deposits as a private piggy bank into which they can dip their grubby hands. Banking is a business built on trust, faith that the money deposited there will be used wisely by way of loans to productive enterprises or investments in high-grade bonds or other financial instruments. Now, depositors have to think twice before committing funds that may never get back to them.
That is why it pains one when failed banks–that were closed for obvious mismanagement or the use of bank deposits to fund owners’ and management’s personal ventures, adventures, or peccadillios–are allowed by government or the legal system to get away with their crime and even file cases against regulators. In a legal system that is fraught with illicit transactions that favor those who are willing to pay the price, it is highly possible for a failed bank to reopen for business, to the future distress of new and unsuspecting depositors.
I sincerely hope that our local banking system remains fairly solid, and able to withstand the buffeting that they will get because of the malaise that is affecting their counterparts abroad. On the other hand, depositors should be prepared to ask tough questions of their bankers: Their policies on investments and lending, their exposure to bad debts, whether any garbage is hidden away in the contingent accounts, actual exposure in potential land mines like (the bad kind of) derivatives, and so forth. This should set bank managements to thinking too, and keep them on their toes, as both the depositing public and the regulators act to keep the banks and bankers honest.
5 Feedbacks on "Can We Still Bank On Banks?"
paetechie
our banking system’s very different from those of the US and Europe. Banks here are very conservative and it’s really so hard to apply for a loan, unlike in the US where people live on credit…
that legacy group is a classic, offered much too high interest at no risk? the old adage “if it’s too good to be true” applies here
rick
The only thing keeping the Philippine banks from failing is the U.S. Federal Reserve. When Lehman brothers failed, BDO, Metro and other big local banks have a lot of exposure. Can you imagine if Citi, Bank of America and Wachovia failed? Philippine banks bought a lot of bonds from these U.S. banks. They will cause a systemic chain reaction of losses and failures here. So, the best thing to do is to increase the PDIC insurance amount so that the depositors will be protected.
zaguman
I have no more faith in rural banks. I have seen some rural banks fail and the officers just got away with it and after couple of months opened another rural banks under new name.
I just wish there will be stricter laws and more accountability for bank officers/ owners.
I have seen people parted with their hard earned money and treated with contempt when they asked for their money back.
Even getting the deposits thru the PDIC has been torture to them considering these are just ordinary folks.
carlos teodoro
Lessons from the recent bank failures — do not exceed the PDIC insured amounts.
Excess funds should be in T-Bills , Treasury notes. or other Government of the Philippines guaranteed instruments.
D2
The problem with your wish is you are wishing on a system doomed for failure.
Let me explain:
Our current banking system (for the entire world to be exact) is based on a system known as Fractional Reserve Banking. This system allows banks to ARTIFICIALLY CREATE MONEY SUPPLY by maintaining only 10%-20% of a person’s money in the bank while loaning out 80%-90% of the deposited cash.
The problem comes in two ways:
a. the persons who deposited the money immediately wants to withdraw all of their money. YOUR MONEY BY THE TIME OF WITHDRAWAL IS TECHNICALLY SPREAD OUT ALREADY IN OTHER PEOPLE’S HANDS.
b. the cash from those deposited money are invested in “assets” that are illiquid or hard to dispose of when the cash is needed by either the depositors or the bank itself. Technically some “assets” are actually trash or are very speculative. the inherent problem is that the depositors DO NOT HAVE CONTROL OVER THESE INVESTMENTS.
So if the banks get to step on any of these two landmines, they are the ones that cause bank runs.
Bailing out the banks is also a no-no, these people must suffer the consequences or we will be sucked in also. Why?
Because PRINTING TOO MUCH MONEY via Central Banks will cause inflation in the long run. Just like Zimbabwe, Argentina, and others. Now the US also has gone the same path of printing dollars which are only backed by “confidence” and not Gold.
Remember, a country printing too much money without enough production is the same as COUNTERFEITING.
The system must change. We must go back to fiscal discipline. Go back to Gold to halt unnecessary ARTIFIAL CREATION OF THE MONEY SUPPLY.
Otherwise, we are all screwed.
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