Banks closing individual and small-business accounts

Investment Analysis Clubs Macro Economic Trends and Risks
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Don’t be blindsided by this. Maintain more than one checking and credit card account.

Why Banks Are Suddenly Closing Down Customer Accounts

Surprised individuals and small-business owners can’t pay rent or make payroll, and no one ever explains what they did wrong.
By Ron Lieber and Tara Siegel Bernard, The New York Times, Nov. 5, 2023

The reasons vary, but the scene that plays out is almost always the same.

Bank customers get a letter in the mail saying their institution is closing all of their checking and savings accounts. Their debit and credit cards are shuttered, too. The explanation, if there is one, usually lacks any useful detail…

These situations are what banks refer to as “exiting” or “de-risking.” This isn’t your standard boot for people who have bounced too many checks. Instead, a vast security apparatus has kicked into gear, starting with regulators in Washington and trickling down to bank security managers and branch staff eyeballing customers. The goal is to crack down on fraud, terrorism, money laundering, human trafficking and other crimes.

In the process, banks are evicting what appear to be an increasing number of individuals, families and small-business owners. Often, they don’t have the faintest idea why their banks turned against them.

But there are almost always red flags — transactions that appear out of character, for example — that lead to the eviction. … By law, banks must file a “suspicious activity report” (SAR) when they see transactions or behavior that might violate the law, like unexpectedly large cash transactions or wire transfers with banks in high-risk countries… [end quote]

The article describes various types of transactions that could trigger an SAR to the government. These often include repeated large cash transactions of different types.

The scale of the problem isn’t large enough to have a Macroeconomic impact but individuals and businesses could be devastated.

Wendy

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Are they sure it isn’t a matter of banks simply booting people they don’t make enough money off of?

Back at the dawn of time, I was fired by the Book Of The Month Club, because I didn’t buy enough books from them.

Steve

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I used to have to do SARs here in the UK. I still get update details from my Institute although I don’t practice anymore.

The government is piling legislation upon legislation in this area. Instead of asking questions which is time consuming, difficult and more importantly expensive, as reports must be sent to senior managers before being submitted, it’s easier to close the account. My own Institute was criticised by the government for the lack of reports from its members so we were showered with more regulations in this area.

Small businesses and individuals only make banks money if these accounts run along with no trouble.

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Which is why I try to always have at least two different financial institutional accounts, at different companies, all the time. If one “goes stupid” (has happened 2-3 times thus far), they get dropped. And I move most activity to the other facility. Then find another back-up bank for when it happens yet again.

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Just about to do that same move today myself

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I moved to Schwab after decades with Fidelity because

  1. the ethos had noticeably changed away from aiding and assisting retail investors since Ed Johnson left,
  2. Fidelity silently told me that they had no interest in being useful to me because I was living abroad

Now I am searching for my backup in case (when) Schwab starts trying to screw me.

david fb

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