Bank On It
Banking has taken a hit recently in the eyes of consumers. The disparaging view held by many investors is not at all unfounded. Banks have traditionally stood as an entity governed by integrity. After all, it is an institution that is granted carte blanche with your deposited funds. An individual is quick to drop a deposit to an institution that will then act as a responsible steward with the funds. The tacit agreement is that the bank can use the money to increase its own position while sharing a small bit of the proceeds with the depositor. The bank is responsible for providing the money or a portion of the money back to the depositor at any time deemed prudent by the owner of the money. The relationship is unique in that it is a voluntary risk assumption by the depositor that makes the whole system work.
Recent international news has illustrated a pattern of irresponsible behavior by banks and banking institutions. The resulting instability is cause for many to ask “Would I be better of putting on my knee high boots and digging a hole in the backyard for my money”. The scenario may seem extreme, but so is the level of irresponsibility exhibited by corrupt institutions. The foundation of the monetary system depends on a certain percentage of funds being held in reserve. The reserve funds must be held in a liquid state that allows for immediate access under conditions of unexpected volatility. If there isn’t enough dough available when the hammer comes down, it spells trouble for somebody.