COVID-19 Banking Q&A: Your Questions Answered

Last week, we asked GlobalBanks subscribers if they had any questions about banking during the COVID-19 outbreak.

As it turns out, the current crisis and the resulting economic impact have people worried about banking. Very worried. As you’ll see below, COVID 19 banking concerns range from specific banks to financial systems, and currencies to bank runs, and much more.

We couldn’t answer all of the questions in this article. But, there were a number of overlapping concerns that we‘ve tried to narrow down into a few core themes.

GlobalBanks Insiders that submitted questions will get a direct response to their specific questions in the coming days. 

And if any Insiders have additional questions, simply email our team or use the chat function to take advantage of your membership benefits and have your questions answered directly.

Now, let’s take a look at some of the most pressing COVID 19 banking questions that were submitted and the answers that our analysts have put together.

Q1. What concerns do you have about COVID 19 banking in the EU and a potential financial crisis?

For the time being, COVID 19 banking concerns have not changed our views on EU banks. Meaning, there are banks in the EU that we think are decently capitalized. But there are also banks in the EU that we wouldn’t wish upon our worst enemies.

The reason that our view remains unchanged (for now), which is similar to other jurisdictions, is that we expect central banks to take whatever steps are necessary to prop up the markets. And that includes the banks.

covid-19 banking european banks

The European Central Bank (ECB) has already positioned itself to soak up the expected debt that is going to be needed to finance the virus response effort. They’ve already removed most restrictions on asset purchasing, which means the ECB is free to take whatever steps are necessary to keep the EU liquid and afloat during this crisis

All of this is in line with a statement made by the ECB’s president that “there are no limits to our commitment to the euro.”  Now, depending on your economic outlook that could be very bad or very good. Regardless, it’s given investors extra confidence and has eased pressure on the Eurozone for the time being.

That said, here are a few areas of concern to consider. 

We caution anyone against banking in countries where the virus has had the worst impact… think Italy and Spain.

Additionally, other banks throughout Europe, especially those that are poorly capitalized, have traditionally had poor customer support and archaic online banking interfaces may be more vulnerable to more operational disruptions than usual.

Ultimately, whether you’re worried about banks in the EU, the US, or a tiny Caribbean island, it’s important to understand your bank’s balance sheet and what it actually means. To do this, you can run a few simple calculations that will either put your fears to rest or make you want to withdraw your cash immediately and bank elsewhere.

For more on this, check out yesterday’s article which details exactly what you need to look for to make sure your bank is safe and stable during uncertain times. Click here to read more.

Q2. Are banks in Malta safe?

Like our above question about EU banks at large, COVID-19 banking concerns have not changed our view on banks in Malta.

But, you might be wondering, “What’s our Malta banking view?”

hot to open bank accounts in malta now

Generally speaking, we don’t recommend Malta as a banking jurisdiction. Unless, and this is an important caveat, you have physical operations or a need for a physical bank account in the country. If that’s not you, we recommend banking elsewhere.

We outlined our reasons for not opening in Malta in our recent article “How to Open Bank Accounts in Malta.” If you’re considering Malta as a banking destination we highly recommend reading this article first.

But given the purpose of this Q&A, we assume this question likely reflects concerns over bank accounts that are already open and funded.

Generally speaking, there are a few considerations to help underscore whether or not your money is safe in a Maltese bank: government finances, the central bank, currency, deposit insurance, and of course the individual bank.

Since we don’t know the actual bank, let’s take a look at the other Malta specific considerations:

Government finances: The Maltese government currently has 48.5% debt to GDP as of 2018. With increasing pressure from the threat of a COVID 19 banking crisis and looming economic concerns, this will probably increase. Fortunately, unlike many countries, Malta can comfortably increase their debt ceiling without any major concerns.

Central bank: Like the rest of the EU, the Central Bank of Malta has limited powers. In other words, they don’t provide any financial backstop. Instead, they fulfill a regulatory function, managing the domestic banking sector. In countries where the central bank plays a larger role, we could take a closer look at the underlying financials.

Currency: The currency of Malta is the Euro. And while we’re not particularly fond of the Euro as a store of value, the ECB is making statements that indicate short to medium-term stability. You only need to look at the ECB’s recent comments referenced in our response above to see what we mean.

Deposit insurance: Malta offers deposit insurance of EUR 100,000. This amount applies to the total value of all accounts held in a failed bank, regardless of the number of accounts. This is the same legislated deposit insurance that depositors receive across the EU. If you have more than EUR 100,000 on deposit in Malta, you should diversify your deposit across multiple banks. This will ensure that you do not exceed that deposit amount at any one bank.

So what does all this mean? 

In the context of whether Malta banks are safe, generally speaking, the foundation of the banking sector isn’t bad. But, the sector is already under pressure due to its major compliance failures. And this has led to new restrictions and more account freezes and closures than usual.

But again, whether a bank is safe or not depends on the individual bank.

Any GlobalBanks Insiders with questions or who are interested in learning whether their bank is safe can contact our analysts directly.

If you’re not a GlobalBanks Insider and you want to learn whether your bank is safe, get your free copy of Recession-Proof Bank Accounts for free right here….

Q3. Which brokers do you recommend for non-US citizens and non-US residents who want to take advantage of the future rebound in US stocks (mainly via indexes) after COVID 19 banking concerns subside?

To our surprise, this was a common question from our readers. Needless to say, we were pleased to see so much optimism in what’s an otherwise bleak situation.

Positioning yourself now, getting your accounts in order, and making plans to capture the upside is smart. And getting the right banking and brokerage accounts in place now so you can move when the time is right, just makes sense.

Now, we’re not here to talk about investments. There are enough talking heads to tell you when to buy and what stocks to get behind. But as far as finding the best banks and brokers for non-US investors is concerned, that’s definitely something we can help with.

Warning for non-Americans: Be careful about which broker you choose and what you invest in. You can end up with a nasty US tax bill. 

Yes, even if you live in a tax haven and are a non-US resident, you can end up with a big US tax bill… if you invest in the wrong stocks and don’t take your broker selection seriously.

Generally speaking, most non-Americans wanting to invest in indexes will find that Interactive Brokers (IB) is one of the most cost-effective options out there. If, of course, you can hit the $100,000 minimum needed to waive fees. They also have superb product availability.

IB even offers interest on cash deposits up to 1.06%. Sure, that’s not jaw-dropping, but that’s better than many big box banks out there. They also have deposit insurance but the amount varies depending on which jurisdiction you open an account with.

There are other brokerage options out there as well, but for a number of reasons, IB is a decent choice for non-US citizens with over $100,000 to invest.

Remember: Investing through a US broker has implications for your money. Balances above US $60,000 are subject to US estate tax. In other words, if you die with more than US $60,000 in your brokerage account, your heirs will owe 40% to the US government. And depending on your tax residency and what you invest in, there may be other US tax issues to worry about.

We’ll be publishing a report for GlobalBanks Insiders focusing on investing in the US stock market for non-US residents and foreigners. This will include a comprehensive list of brokers to choose from.

This report won’t be about stock picking. Instead, it will tell you the best broker and banking combinations to maximize your returns and minimize your overall tax bill to the greatest extent legally possible, regardless of whether there is a COVID 19 banking crisis or not.

GlobalBanks Insiders will get immediate access to this report once it’s published in the Intelligence Reports section of the site. 

If you’re not yet a GlobalBanks Insider and would like to access this report when it’s released, you can follow the link below to learn more about the platform and the benefits you receive.

Q4. Should I start withdrawing my cash in case there are COVID 19 banking runs?

This was the most frequently asked question that we received by far. But, it’s also the hardest question to respond to definitively.

The FDIC’s recent video encouraging people to NOT withdraw cash from US banks probably didn’t help…

Encouraging, right?

Whether or not you should start withdrawing cash is something that only you can answer for yourself.

Having a few months of cash available during an economic collapse is key. Whether it’s a COVID 19 banking lockdown or any crisis, it doesn’t hurt. After all, when you’re earning less than 1% from your local bank account, you don’t have much to lose.

But, should you withdraw a large part of your savings into cash?

Well, that depends on your bank. It also depends on the country you’re banking in.

If you’re in a country with a history of banking failures and capital controls, then yes.

But, if you’re at a financially sound bank in stable jurisdiction, your money is likely safe for the time being.

The ideal scenario is this: Diversify your cash holdings across multiple banks, ideally in different countries. If one bank fails or one country descends into a COVID 19 banking crisis, your other deposits are safe.

Note: We always recommend keeping cash on hand, regardless of what’s happening in the world around you. It always makes sense to have some cash to cover emergencies.

Why is it important to diversify and keep some cash-on-hand?

Banks could run into operational issues during a COVID 19 banking crisis. You might not be able to access your money. Online banking can temporarily shut down. Technical support might not be available. Branches might close, banking hours slashed, and certain services might not be available. Having extra cash on hand is just basic risk management and makes sense.

As we’ve said above, we don’t see a systemic risk of bank defaults just yet… but that doesn’t mean some banks won’t fail if we do enter a recession.

Yes, we expect to see an increase in loan defaults and a number of highly leveraged industries (think commercial real estate, airlines, cruises, etc) are going to take a hit during this COVID 19 banking situation. That will, of course, negatively impact banks.

But, for the time being, central banks are printing enough money to keep banks and economies liquid. We’re not necessarily in support of this, we’re just stating it as a fact.

Here’s what we recommend:

Before emptying your bank account, review your existing cash holdings and bank accounts. Review your bank’s balance sheet and determine whether you are comfortable with their current financial position.

Additionally, be on the lookout for warning signs that suggest the bank might limit withdrawals. The same is true for the risks of operational disruptions in the future.

For instance, does your bank have a negative review in the GlobalBanks Database for past online banking failures, technical issues, or horrible customer service? If so, you may want to get a backup bank account now to avoid COVID 19 banking disruptions. This will ensure that you’ll always be able to access your money in the future.

The steps to do this (and the other steps you should take right now) are outlined in our recent article about how to improve your COVID 19 banking. You can read more by clicking here right now.

Q5. What will happen if depositors all start to withdraw their money in the coming weeks?

This is a continuation of the question above.

The bottom line is this: Banking is a system of trust. But it only works if everyone trusts the banks at the same time. Even if a small percentage of customers lose their trust in banks and try to withdraw their deposits at the same time, banks will run out of cash.

That’s why we’re seeing the central banks, governments, and banking executives hit the promotional trail trying to calm depositor COVID 19 banking concerns.

covid-19 banking bank run

If there is a COVID-19 banking run, we will quickly see intervention, withdrawal limits, forced bank holidays, and capital controls. This is what happens when a country is on the brink of a banking crisis.

You only have to look at countries already facing banking challenges to know what this will look like.

Modern examples include South Africa, Lebanon, Argentina, Venezuela, Cyprus, or Greece for instance. 

We’ve written about such capital controls a number of times, and that’s exactly why it’s important to diversify your bank accounts.

To read what steps you should be taking right now to protect your money during the outbreak and any economic crisis that follows, download Recession-Proof Bank Accounts for FREE right now.

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