HSBC, One of the World’s Largest Banks, Makes Customers Provide Proof They Need Money Before Processing Withdrawal Requests

How many US bank customers know that if you have your funds deposited into a N.O.W. (negotiate orders of withdrawal) checking account that the financial institution, by law, reserves the right to require 7 days notice before withdrawal?

I would say practically none (are aware) because it only tends to become a problem when a bank is facing a liquidity or net worth crisis. For generations, the moment a bank refused to let a customer access his or her money, word spread fast and you'd have a bank run on your hands. It's a monumentally stupid way for a manager to behave; right up there with wearing a wool sweater in a sugar refinery.

If one were managing a bank, withholding depositor funds, even if permitted, should be an absolute last resort because it sends a signal to the consumer and financial markets that your capital position is much worse than people were made to believe. It would be a huge red flag to me. I wouldn't want to be anywhere near the institution as a customer or as an investor.

I think that's why people don't pay attention. The forces at play make it so that it never comes up except when things have already gone south.

If it weren't for nationwide ATMs & branches, branded Visa cards, free trades through Merill Edge, mobile apps & all of it tied to my online account I would dump BofA and go to my local credit union. Although, I have never had issues with my big bank experience through BofA. It's just the horror stories I read about that make me want to switch. I stick with them more out of convenience than anything else. The big banks have succeeded in becoming "sticky" with all the services they provide. This makes me mad, having to explain myself when making transactions with my own money.

So you read a story about a customer experience in the UK, and you somehow managed to draw a conclusion on what should be done with the US banks? These two items are completely unrelated.

I don't mean to be rude, but I am really surprised that someone who claims to have studied mental models and all that stuff, makes conclusions based on links between totally unrelated items.

Actually Dividend,

I have a friend who was doing work on his house, and paying his contractors in cash. He was CONSTANTLY getting harassed by the BAC tellers about why he was taking out 5/10K in cash at a clip. So, YES it is happening here, but just npt as blatant as the HSBC example.

If my bank tried that crap with me I'd be walking out with a cashiers check for the full balance of my account, and the contents of my safe deposit box.

I really don't like this war on cash. I was inside a McDonald's in my local community this afternoon and the entire counter line had to shut down because a customer wanted to pay with a $50 bill. The employees weren't sure if they had enough money on hand to complete the transaction. This is a business that does around $2,500,000 in revenue per year, or almost $7,000 per day, and they hadn't planned far enough ahead to break a fifty.

I remember being a kid in the 1980's and people carrying around $100 bills and using them. Today, they'd be worth almost exactly $200 after inflation, and yet you have no chance of breaking one today at a many gas stations, coffee shops, or retail stores.

With the government monitoring of data, I'm beginning to wonder if the privacy of cash couldn't be seen by some as a universal human right. I'd bet money Germany would be the first nation to recognize it if such a thing ever happens.

I don't think governments will allow privacy of cash to be a human right. Governments are not stupid and know how people can cheat on their taxes with cash-only businesses. They would rather be able to control transactions for tax purposes in the name of something like preventing fraud, money laundering, illegal business activity, etc.

Before the invention of currency, it was harder to fulfill a double coincidence of wants. Therefore, in order to make trades you needed to use a system of debt accounting. And because of the problems of credibility and trustworthiness associated with debt, it is difficult for you to make economic transactions with strangers since you wouldn't know if you'd ever get paid back. The development of currency reduced the need for intimate knowledge of your customers and suppliers, which allowed for anonymous transactions, because you no longer needed to know where people got the money or how trustworthy the buyer was. All you now care about is whether the buyer gives you money when you part with the goods. So money itself is an anonymizing agent. But only because it was impractical, difficult, and relatively pointless (you didnt have the resources to do data mining back then) to keep track of the flow of money. Now that we have the tools to do so, we are getting to a point where trade isn't going to be so anonymous anymore. I'm not sure I like that idea, but I don't think it will go any other way. Governments don't like not being able to track the money, and there's also nothing natural about privacy in the market given that engaging in the marketplace is an inherently social, public activity.

My dad got bored in retirement and spent a few months working at a local Irving.

Any $100/$50/$20 bills they get immediately go in the safe. If someone gets caught with one in their drawer, they get written up.

$100/$50 going into a safe or locked drawer were policy when I worked in a grocery chain store 25+ years ago but not $20s. Food receipts were often for $100+ so how could you pay out change for $50s and $100s without twenties?

For this bank, although they've changed their policy, I would just write up a phony invoice or estimate. I work for multiple companies and could arrange it for one in case they called, which I doubt. Just busybodies.

Why should you have to go to that length?

It's your money. There shouldn't be conditions on when you can access it.

I'm shocked that management could make this decision without regard to all the potential negative consequences. You have bad signaling issues. You're reducing convenience for your customers, and what they do with their money is none of the bank's business anyway (unless there is fraud). Given recent trends toward mobile banking for everyday transactions, I don't understand the bank's logic in trying to make it *harder* for customers to do business at the bank. The move further gives a bad signal that the bank is potentially weak.

I understand that in light of the massive recent credit card hacking that's been going around in the past month, institutions might be a bit more paranoid about identity theft issues, but it is extremely poor strategy to just abuse your customers by invading privacy and changing policies without notice. If the NSA didn't scare people, I sure hope this does. In the past decade, we have lost a lot of ground on privacy in the name of convenience. Many people don't care about losing privacy if they get convenience in exchange. My feeling is that people were enraged at the convenience aspect of this debacle, not the privacy case, but I can always hope...

The reason your friend was being "harassed" at his bank was that the Federal Government requires "SAR's" or Suspicious Activity Reports, "MIL's" or Monetary Instrument Log, or "CTR's" or Currency Transaction Reports under the Bank Secrecy Act of 1970. Anything that could be construed as "suspicious activity" regardless of whether or not the "average person" would find anything suspicious about it. The bank as well as the employee can be fined and the employee can actually face prison time if they are convicted related to this. Also, the bank can be fined for letting the customer know that a SAR has been filed against them. That is also why from the publics view, they are doing something unscrupulous but they are merely complying with Federal Law.

Not to be rude, but ... really? Come on. You should know better than that.

You think my opinion on how the banking sector in the United States should be restructured, despite:

1.) Working day-to-day buried in financial reports and regulations,
2.) Spending a decade talking about it on one of the Internet's biggest sites,
3.) Having my largest family investment holding be a bank, and
4.) Being surrounded by bankers with whom this is ordinary coffee conversation

is based on this single event in the Untied Kingdom?

You've read the site long enough to know I don't have opinions on things unless I've over-analyzed them, torn them apart, reconfigured them, and then attacked it from every conceivable angle.

This particular article is simply another illustration of how the culture that has been permitted to seep into the banking sector has fundamentally changed the nature of the day-to-day work and the philosophy behind a lot of the folks in the industry.

That withstanding, it is absolutely related to what goes on here in the United States for two primary reasons. First, HSBC is one of the largest banks in the United States, with approximately $298,140,000,000 in deposits under the power of American regulators. It is perfectly legal for them to implement such a policy here under U.S. law, should they desire, as another commentator already pointed out higher up in the thread. If you think one division of a global holding company doesn't talk to the others, that seems a bit naive.

Second, it's a very small world for the bank decision makers who look to mimic each other when a policy works. For example, the biggest banks in the United States recently threatened the Federal Reserve with charging American customers to deposit money - yes, you would have to pay to put money into your own checking or savings account - after seeing it work at a private bank in Switzerland, unless the Fed continued a stimulus program that added several billion dollars a year to the bank's income statement at the expense of society.

The way it was presented, provided an illusion that this was a deciding factor in your opinion. It seems it is probably not that way in reality, and I know you read more than that. However, I would have appreciated more detail in your article. I prefer your longer article, which I realize might or might not work all the time for you, because of constraints you have on your time ( family, business, reading, website responsibilities)

Anyway, I have withdrawn thousands in cash from my local bank, and they always look at me like I am doing something illegal. I would say this could be also because few people actually deal in large sums of cash. I mean, when I withdraw $4000, and the cashier asks me if I am going for a trip, that sounds unprofessional. This is why I no longer deal with that bank.

So to answer your question - if only one of the banks I deal with makes it difficult for me to do business, I would switch banks. If all banks make it difficult to withdraw cash, I guess that would not be fun. But in reality, few people will be affected.

In some parts of Europe, you need to make transactions with an amount about a certain threshold through cash-less means. I think this is to try and prevent illegal activity.

Actually, I think Brokerage Houses should not let people buy/sell stock, unless they have a good reason for that. So if I wanted to buy 100 shares of General Mills today, I would have to provide a reason for it, or else they won't accept my order." I am buying General Mills because..."

Wow, someone actually came up with a reasonable excuse for smurfing... I'd love to read that SAR/AML form.

NARRATIVE: Suspect blatently attempted to circumvent bank paternalism, to return money to parent. Initially attempted to make one withdrawal for full amount, but was convinced to structure transaction by bank employee, in accordance with official policy.

I have an older friend that I see a few times a year, an octogenarian. Depression-era lessons stuck and still guide their life (still won't buy stocks despite a seven figure net worth). Doesn't have a computer. Banks with a bank that has a website that looks like it is from the early 1990's but made a deal with the bank president their records would never be put in the system so registration would be impossible. Keeps all records by hand. Only deal with cash. This person keeps $50,000 to $100,000 on hand all the time hidden in various places. Buys rental houses for cash. Pays for groceries in bulk for cash. Drives an old car, lives in a house that can't be more than $120,000. There are certificates of deposit and money markets hidden throughout the state that not even their children know exist.

I can't even imagine what the paperwork looks like on them.

HSBC is already backtracking from this as they have felt the backlash. Here is their UK twitter feed. https://twitter.com/hsbc_uk_press See 2/2

That was quick; thanks for the update! It's funny how a little sunlight can change human behavior when they're doing something questionable.

No problem. Not sure how much of it was them "seeing the light" and how much of it was them seeing $$$ leaving their pockets. Since money is the core motivation behind pretty much everything they do, I am curious as to how they expected this policy to positively affect their bottom line. Or maybe I am being too cynical and they just wanted to thwart unsavory behavior. (though their Mexican money laundering fiasco points me away from that) It would be interesting to see how much this policy actually cost them through account closures, bad publicity etc.
P.S. Thanks for all the great content over the past year or so that I have been reading. Every so often I still find a link to a new "Related Post" at the bottom that I have not read yet, but I have gone through many past articles through the archives browsing by category and have found many of great use. My address bar has a special folder for your article's bookmarks that I find most useful to share or re-read from time to time.

Do you think some of this mentality is a result of governments fearing a cash society that they have a hard time taxing? I know in countries like Italy most transactions are in cash to limit the taxes paid by both buyer and seller.
Cheers,
Scott

I think there is definitely a desire to go to a cashless society, both from governments and large corporations. Despite making me uncomfortable, it does make a lot of sense. The recent legal changes that require merchant banks to file tax reports on their customers to make audit easier is a prime example. It combats money laundering. It combats drug deals. It combats embezzlement. It combats tax evasion. It can reduce crime significantly because you aren't walking around with funds on you.

Cashless societies are also likely to experience higher velocities of money, at least until the average family gets loaded down with debt because there is also a large body of evidence that people are likely to overspending significantly when they use digital money or credits rather than having to physically hand over a token that is taken from them at the register (bills or coins), which triggers a sense of loss. Currency imposes discipline because of how the human mind is wired. Very few people in the masses naturally carry this over to debit cards or credit cards; and that's perfectly normal - there isn't anything inherently wrong with them, they just haven't been trained to combat it. It's one of the most interesting, and studied, phenomenon in behavioral economics. If you're at a sandwich shop and the drinks are priced at $5, you might not think anything of it if you're putting it on an American Express, but if you have $15 in your wallet, you probably are going to skip the Coke. That adds up over the years to very meaningful amounts.

I have a sneaking suspicion this same force is in play elsewhere - in fact, I'd wager a few bucks on the hypothesis that stock certificates and physical dividend checks had an influence on investors in years past holding their ownership stakes for many, many times longer than they do today, on average. You go back and look at the 1950's, 1960's and the turnover rates for shares were so much lower, even adjusting for institutional trading. People bought a block of General Electric, stuck the engraved certificates in a bank vault, and physically opened their mailbox to get a check with the GE logo in the corner. It was real. It was tangible. Selling the stock meant having to go down, get it out of the vault, endorse it, exchange it for money, calculate the taxes on it. Sure, there was periodic insanity but it wasn't so consistent or widespread as today. Now, to a lot of people, it's just little blips on the computer screen. I think it's a tragedy, myself, but I'm in the minority. Even the artistic value of what the engravers were able to do still impresses me.

The dividend check is a great example and one I can relate to with the recent Disney distribution. I have a few transferable shares that are framed on my wall for decoration, each company certificate representing one share. I hadn't set up my DIS drip yet so I received my $0.86 check in the mail the other day, logo and all. Although it was only for $0.86, it was more enjoyable than a large MLP distribution (for a moment) simply because it was tangible and not a slight blip in my brokerage account.

A bit off-topic Joshua, and maybe a bit late, but is the plan for publishing your book on valuation still ongoing?

It's as though there's no more news of the book. (If there is, I apologies, as I might have overlooked it in the overwhelming number of posts on your blog.)

My own first impressions make this sound like a instinctual, not well thought out attempt to mitigate potential money laundering accusations. The article mentions only cash withdrawals, and not EFT withdrawals.

Then again, this is in the same country that banned currency exchange firms from distributing €500 notes, because, obviously, anyone who uses cash like that must be a criminal!

http://news.bbc.co.uk/2/hi/uk/8678886.stm

On the other hand, there are some banks, like Handelsbanken, that treat their customers brilliantly, take no extravagant bonuses, lend prudently, do nothing exciting whatsoever - and still make money hand over fist:

http://www.bbc.co.uk/news/business-25336448

They banned the $500 note in the U.S. back in 1945. Of course, today's $100 bill will buy you what a $10 did in 1945. Imagine reducing all the bills down to no larger than a tenner in 1945!

No they didn't. They just stopped printing new large-denomination notes due to lack of demand. There's nothing preventing a bank from giving you as many $500 bills as you'd like, save the fact that they are worth significantly more than face value to collectors, so banks don't have any in their till. The notes are still legal tender, and may be exchanged freely for goods or services.

Also, you're talking about the prevalence of US$500 notes inside the US - England doesn't use the Euro, these are foreign currency notes. You're perfectly free to go down to your local bank branch and buy as many $10.000 SGD notes (which are worth ~11.5x as much as the €500 note) as you'd like, and, while it may take them a couple days to fly some in, there's no official effort to stop your bank from filling that order.

I really enjoy your blog Joshua it is very informative. What I do not get is why people continue to do business with businesses that treat them this way. When I read that story over at the BBC I thought that if it was me in that story I would have closed all of my accounts with that bank as soon as other arrangement had been made. I will not do business with companies who treat me that way. People need to be more engaged.

Something similar happened to us 2 years ago and we subsequently removed all our funds from HSBC. They also limited EFTs to both a daily, and a maximum weekly amount. We were buying a house at the time, opted to pay cash after HUD refused to gaurantee the mortgage due to issues with comps in a depressed market, and couldn't get our money out of HSBC in a reasonable and timely manner despite having over 15x the requested amount in the bank. Don't think it doesn't happen. Some people just quietly move their money to more suitable environments.

I am another person in the UK who has quietly moved their money away from the big banks to a type of mutual organisation known in the UK as building societies. The largest of these, Nationwide Building Society, has seen significant growth in account holders since the financial shenanigans of 2008/9 and I suspect that many are customers disillusioned by the big banks. Building societies are by no means perfect but I have noticed from personal experience that they seem to have a more sympathetic attitude to their small customers. Our family does not now do business with the any of the big banks unless it is unavoidable.