Retirement Abroad: Offshore Bank Accounts

Financial access and security are vital requirements when contemplating retirement abroad. It is necessary to have assets safely held and easily available. One of the best ways to solve these problems is by having an offshore bank account. As with anything there are a few safeguards that need to be taken in opening an offshore bank account. It should first be understood that it is both legal and easy to have such an account.

An offshore account is simply a bank account with a bank that operates in country different from the residence of the account holder. The anonymous or numbered accounts given publicity in many novels of intrigue and crime are now virtually things of the past. Offshore accounts are safe, probably safer than normal non-offshore accounts. Within a country the tax authorities could seize funds in a domestic account leaving the burden of proof of innocence of a crime on the account holder. It is much more difficult to take funds from an offshore account and may well involve obtaining a court order which probably requires at least the prima facie evidence of a crime. Since the Twin Towers attack in New York (9/11) increasing restrictions have been placed upon banks. Total privacy is now difficult to obtain but a satisfactory level of performance can be found.

Advertisements can be found in newspapers, financial journals and on the internet offering introductions to banks and the establishment of offshore bank accounts. These should be ignored. The offers amount to the provision of freely available application forms, no genuine introductions and a pre-supply charge invoice in three or four figures. A personal or company offshore account can be opened with a minimum of formality and, except, usually, in the case of a company account, attendance is at the bank is not required.

Small banks on Caribbean or Pacific Ocean island tax havens should be avoided. Such banks often manage their affairs as single accounts with larger banks so all that happens is that an extra layer of charges and formalities is introduced. The location of such accounts also draws attention to the account holder. It is useful to have the chosen bank operate in an area which is governed by the kind of common law to which one is accustomed. Generally the choice will be between derivatives of British or Roman-Dutch law. The differences relate to burdens of proof and the status of women but there is no need to consider such detail here. The preference should also be to have the bank do business in a language in which one is totally fluent. The geographical and jurisdictional location relevant to the country of residence are also important. Banks are increasingly succumbing to the pressure of governments to enter into information sharing arrangements with tax authorities. As an explanatory example, it would not be a good idea for any EU resident to open an offshore bank account in the British Channel Islands or the Isle of Man. Agreements between banks and governments cover the whole EU area and are increasingly applicable to the traditional offshore banking countries such as Switzerland, Austria, Andorra and Luxembourg.

There are large globally operating banks that will permit the opening of offshore accounts via the internet with the provision of the appropriate documents and a minimum deposit. Some also do business in places that are not considered to be tax havens. Most major banks offer debit cards with offshore accounts. The preference should be for a Visa or MasterCard debit card. Although these are not credit cards and any use is charged immediately to the bank account they can be used for such things as airline ticket purchase or hotel bookings. Another useful facility is that the accounts can be of a multi-currency nature. Access via the internet for all transactions is essential.

The establishment of offshore corporate or trust structures will probably require the supply of additional information and personal attendance at the bank may also be necessary. Supporting documents will include a certified (notarized) copy of a passport, proof of residency (a utility account or driving license will suffice), a letter of recommendation by the local branch of the offshore bank or from a current account holder or from any bank with which business is currently conducted, a personal or business reference and a completed signature card. Forms and supporting documents must usually be mailed to the bank and funds transferred. The opening deposit can be as little as $US2000.

These suggestions should enable a retiree to have access to financial assets with the least possible risk. Offshore income can be paid into the offshore account and wire and plastic card withdrawals will be available. Local banking for any local earnings, if allowed, can be handled via a local bank.

The Benefits of Bank Reconciliation Services

Bank reconciliation is a process that explains the difference between a balance shown in an organization’s bank statement, as supplied by a bank and the corresponding amount shown in an organization’s own accounting records at a certain point of time.

Organizations can reconcile an accounting difference by tallying every transaction of the bank statement and an organization’s cash book. However, it is a very tedious and time consuming job. A service provider takes care of end-to-end bank reconciliation services.

Some of the common accounting errors that occur while reconciling are, a check or a list of checks issued by an organization not being presented to a bank, differences in bank transactions such as credit received or extra charge imposed by a bank hasn’t been recorded in an organization’s books and so on. To overcome or resolve such errors, entrepreneurs need an expert to handle their bank reconciliation functions. They do the necessary modifications in the cash book and the differences are recorded, to assist an entrepreneur for future reconciliations.

Reconciliations are performed by dedicated account professionals by using advanced software. It is important to have an understanding of what errors might occur and how to rectify them for a successful reconciliation.

Bank reconciliation services helps in reviewing an organization’s bank balance as per their own record books and balance sheets issued by banks. This service also helps in rectifying entries that cause a difference between the two balances. Timely reconciliations allow enterprises to identify and prevent intentional fraud, along with finding errors made by bank representatives, accountants, employees and management. Though bank reconciliation is usually a month-end procedure, organizations with smaller cash resources might also carry out the process weekly (if required).

What are the benefits of reconciliation services?

Detects Fraud

With the help of the bank reconciliation process, an organization matches its distributed checks with the amount or entry entered in bank statements. A vigilant review based on proper sheets and procedures help to disclose fraudulent activities such as payment made for illegitimate business purposes, payments transferred to illicit employees or unauthorized vendors and not revising sanctioned check amounts and details.

Prevents Overdraft

The on-hold time between cash outflows to vendors and employees as well as payments coming from clients and customers can vary greatly. This particularly affects an organization with very low cash reserves. Regular bank reconciliations help entrepreneurs manage or postpone payments that may safeguard organizations from business overdrafts, bounced checks, insufficient funds and extra interests.

Identifies Bank Errors

Bank representatives may make accounting errors such as transfer wrong sum, record wrong check amount, enter the amount in a wrong bank account, omit an entry from an organization’s bank statement or record a duplicate transaction. Reconciling bank accounts give entrepreneurs time to notify a bank of its errors, allowing them to find the difference and correct the error.

Improves Collection

Bank reconciliations let organizations handle their accounts receivable better. When a customer’s payment is cleared from a bank, the receivable remains no longer outstanding and therefore, requires no further action. However, if a client’s check doesn’t clear, that alerts management to be more focused in its collection process.

How Is Video Enablement Changing the Global Banking Scenario?

The present-day banking scenario has been completely alienated from its authentic form. Banking is not about long queues anymore but has transformed into anytime, anywhere banking. Banks and financial institutions across the globe are relying on avant-grade technologies to radically alternate their ways of business. In a recent survey conducted by EFMA, a banking association in Europe, it has been found that banks worldwide have a large appetite for video-enabled banking services. ( This is due to the improved level of customer satisfaction that video banking brings in for the banks and financial sectors.

Wealth Management has an increased efficiency with “Face-to-face” meeting where the executive can communicate with the clients and also present the latest offers, investment schemes on the go. The data, documents, graphs, forms can be collectively referred to and filled up during the meeting, thus saving a lot of time. Moreover, the video has digitized banking but haven’t robbed of the personalized strand. Connecting personally with the customer is exceptionally effective when it comes to higher value-added services like mortgages. The customers may prefer not to visit the bank personally but can still receive video links to connects him/her to the mortgage adviser.

In the year 2014, the Barclays became the first bank in the UK to pilot the face-to-face video banking. The service was extremely successful. This made Barclays move ahead to incorporate Sign Video, were the people using the British sign language spoke to the banking executive through an interpreter. ( Taking the instance ahead, it can be said video banking is a revolutionary advancement with customers with mobility or hearing impairments.

The video enablement of the banking and financial sector has helped organizations to win and retain more NRI and HIG clients. Most clients from this group aren’t inclined to visit the bank in person. The video enablement helps banks to appoint a relationship manager for the high-value clients, for providing personalized assistance on banking and financial matters. Thus, adding up to the credibility of the organization.

The Indian banking scenario has more opportunities for the growth of video banking than any other country in the world. A large portion of the Indian population consists of the menials who prefer banking at their own pace and convenience. Video-enabled kiosks, smart banking, video tellers have been successfully driving the youths into more active banking. Video banking has made unbanked branches earn business ignoring their locational downside. The IndusInd Bank has joined the video bandwagon in providing their customers with video conferencing solutions, through easily available apps on Google Play and Apple Store. The customers can now directly speak with the concerned finance expert seek the help of matters related to investments, loan approvals and so on. The State Bank Of India has also launched 6 digital branches across the country called sbiNTOUCH providing services like instant account opening, loan approvals and personal financial advises.

Online Banking Security – Layers of Protection

No one can blame you for being wary and mistrustful. After all, it is your money we are talking about. We have heard of rumors and stories on TV about e-thieves stealing important information like as credit card numbers. The truth is, online banking is just as secure as your average person-to-person banking and is more secure than the media usually makes it out to be. In fact, online banking may be safer than traditional banking.

Traditional Banking vs. Online Banking

You may not have realized it but in traditional banking, you are exposed to several security threats. Your mail containing your bills and bank statements can be intercepted. When you use the ATM, you may be exposed to physical theft or information theft. Your information can also be accessed by bank employees. Above all, when you pay your bills with a check, your account number, social security number and even your phone number are usually printed on the paper check.

These threats can be avoided, if not completely eliminated, with online banking. Financial transactions are made in the comfort and security of your home or office. Moreover, because they know that online customers are apprehensive, security is their top concern. The bank’s computers are also protected by a firewall.

Online Banking Security Measures

Although single password protection is the most common security method in the United States, password authentication alone is not secure enough for the type of information and business with Internet banking. That’s why online banks use a far more complicated system to protect their clients and ultimately, themselves. They employ numerous layers of strategies and measures to ensure their customers of the security of their dealings. These strategies vary according to the choice of the bank. However, there are measures that are commonly employed by many online banks. Here are some of them.

· The https Protocol: Https is a URI (Uniform Resource Identifier) scheme that is used to identify a secure HTTP connection. Online banking ports are secure sites, often using this prescript, which is encrypted. If something is encrypted, it means that the data, usually in plain text, is converted into codes. Encryption is an excellent process of preventing hackers from accessing personal information in a home or office computer through intercepting “keylogging” or “keystroke logging,” the process of keying in passwords on a website.

· TANs: Most online banks take customer’s security to another level with transaction numbers, or TANS. This method is the most popular among online banks. These TANs are passwords that are intended for a single session only. Prominent banks using this strategy include the Deutsche Bank, the Philippine National Bank, and the Asian Development Bank (ADB).

· Security Tokens: Some banks issue security tokens to the customers. These tokens dynamically change the numbers customers need to enter for each transaction. Online banks using this method include the Bank of Ireland, the Commonwealth Bank of Australia, the National Bank of Dubai, the Bank of Queensland and the Montgomery Bank.

· IC Cards (Integrated Circuit Cards): Also known as chip cards or smart cards, IC cards are another method popular among online banks throughout the world. Chip cards are unique to each customer. They provide an easy means to conduct business transactions in a standard, secure manner with minimal human intervention. Usually, Chip cards contain encrypted digital certificates along with other important information about the holder. Combined with biometrics, chip cards provide an authentication system with two to three factors. The Industrial and Commercial Bank of China (ICBC), the Hong Kong and Shanghai Banking Corporation (HSBC), the Qatar National Bank, the Royal Bank of Canada (RBC), the Standard Bank, and the Barclays Bank use the chip card system.

· Digital Certificates: Another method of ensuring online banking security is with digital certificates. These virtual certificates allow you to digitally authenticate your transactions by connecting them to a physical device such as a personal computer and a mobile phone. Digital certificates are being used in many giant banking corporations such as the Barclays, HSBC, the China Merchants Bank, the Bank of Montreal, the Bank of the West and many others.

Online banks or Internet banks have their security policies and procedures posted on their sites prominently. You can browse through them before choosing which bank to trust. If you have further questions about their methods, send them a message and they will respond to it appropriately.

What Are the Pros and Cons of Community Banks Versus Regional and National Banks?

Q: Several community banks have opened in the area recently. What are the advantages and disadvantages of working with a community bank versus a regional or national bank? 
The Problem – Choosing the Right Bank. Here a bank, there a bank, everywhere a bank-bank. A song, or a reality? These days it is a reality. With so many banks to choose from, it is important to understand their similarities and differences as well as their strengths and weaknesses.
The Solution – Finding a Bank That Meets Your Needs. For an individual, choosing the right bank could mean the difference between obtaining a mortgage and remaining in an apartment. For a business, choosing the right bank could mean the difference between obtaining a loan and going out of business. Finding a bank that meets your needs can be trickier than it sounds. Let’s look at the two broad categories of banks.
Community Banks. Often started by executives that defect from larger banks, community banks have been starting up throughout New Jersey. In traditional corporate fashion, many of the more successful community banks were acquired by the regional and national banks in the late 1990’s. This has left a void, thus an opportunity for new banks to flourish.
One of their key advantages for customers is direct access to senior bankers and top management. With a community bank, employees on the front line have more discretion to make decisions than a larger bank that must follow stricter policies and procedures from corporate headquarters. For example, with most large banks the decision to offer a mortgage to an individual is based primarily on the applicant’s credit score. 
A community bank has the flexibility to review the application, review the credit score and meet with the borrower to gain an understanding of any unique circumstances that may influence a final decision to offer a mortgage. 
Community banks can offer personalized services the larger banks have a difficult time matching. Whether it is a teller’s smiling face or a bank officer delivering documents to your business, community banks go a long way towards proving a high level of personalized service. Community banks have done a good job of retaining their staff, allowing them to provide a consistent customer experience.
Weaknesses of community banks include their limited branch network, lending capabilities and range of financial services. Unlike some of the larger banks, many of the community banks have a small number of branches. Fortunately, most offer Automated Teller Machine cards that can be utilized around the world and internet access 24 hours a day, seven days a week. A growing business may realize the local community banks simply cannot offer the $30 million loan needed to expand the operations, due to bank lending restrictions. Consumers looking for investment services and insurance services will often times be turned away at the community bank. A number of community banks have recently begun offering these services through partnerships with companies that specialize in these services.
Regional and National Banks. Some consumers like the idea that they can go into the same bank, no matter what city (or state for that matter) they are in – just like a fast food chain. Having the luxury of making a deposit at a branch near your office or a withdrawal near your home is a luxury some consumers just cannot resist. Many of the larger banks have hundred of branches in a wide spectrum of locations, from supermarkets to office buildings to stand alone locations. 
Businesses that deal in cash, like restaurants and gasoline stations, may require a regional or national bank with branches close to each of their locations. Some businesses must deposit cash in their bank account two times a day to reduce the risk of theft. Larger businesses seeking capital to grow may need the lending solutions offered by regional or national banks. The regional and national banks have tremendous lending capacity locally, nationally and globally. Most regional and national banks offer a wide variety of financial services, from investments to insurance to trusts. These services may be offered by employees of the bank or through outside partners.
Conclusions. Selecting the right bank should be based in your individual needs. Customers looking for a large branch network or large loan capability may be best suited with a regional or national bank. Customers looking for personalized service, direct access to top management and more flexible loan criteria may be best suited with a community bank. Sometimes, it just comes down to supporting a local business in your community.

Skloff Financial Group
Question of the Month
By Aaron Skloff, AIF, CFA, MBA

Another Misguided Scramble For Africa? – Nigerian Banks Take Over the Continent

Between 2003 and 2008 the Nigerian banking sector experienced its own boom. Nigerian bank assets (according to BankScope data) went from USD 18.6 bn in 2003 to USD 84.2 bn in 2008, but have since fallen back as a result of the significant debt crisis experienced in 2009 (where the Central Bank of Nigeria exposed approximately ~ USD 10 bn in bad debts) across the sector Spurred on by the high valuations several Nigerian banks established operations across the continent with impressive speed. Making money from them will be more difficult.

Making money from new operations in new geographies has not been easy in Africa. Standard Bank of South Africa, acquired the African operations of ANZ Grindleys in 1993 and has only achieved healthy levels of profit when those operations have been transformed into large scale retail operations through subsequent acquisitions. And Stanbic (as Standard Bank is called to avoid confusion with Standard Chartered Bank), had it easy as it was able to follow the rapid expansion of South African corporate across the continent following South Africa’s democratic transformation in 1994.

Most banks that have expanded globally through establishing small green field operations, have done so to support or with the support of their home country corporate base. Nigeria banks have no such luxury, as Nigeria lacks a large number of home grown multinationals that can be relied on to support fledgling banking operations.

One of the challenges is the tiny size of many of these markets. Regulators are increasingly requiring that banks operate as subsidiaries, and thus need to have a full corporate structure regardless of the size of the operation. Just flying directors between countries to attend board meetings can become a significant line item on a small bank’s income statement.

Pan Africanism may be in the buy line of several banks, but intra-Africa trade remains limited except in East Africa. Even then the statistics probably under estimate the extent to which intra regional imports and exports, end up outside the continent and the financing of which gets handled by international banks. There is very limited trade between East and West Africa and far less trade between West African countries than between individual West African countries and Europe and Asia. EcoBank has long been the champion of pan-africanism but its performance has historically been under-inspiring, in comparison to its pan African peers.

To make matters worse, most markets already have banks that can provide cross-border services and that have similar footprints. In East Africa, international banks – Barclays, Standard Chartered and Stanbic have long had regional footprints. More recently KCB and DTB have ambitions to become regional banks, and have created representation across most of the countries, supported by a strong home country base.

Some of the Nigerian banks that established cross-border operations have already got into trouble. Intercontinental bank and PHB have both been the subject of regulatory intervention in their home market. To prosper in these new markets the Nigerian Banks need to define their unique value proposition, and this remains challenging.

Trust is key to banking. Although consumers are seldom choosy when it comes to borrowing, the same cannot be said for deposits. Banks in Africa need to be liability led, and need to convince customers that their funds are safe and that they provide a superior service. Nigerian banks have to work much harder to establish customer trust, given the often poor reputation of their homeland for corruption and fraud.

Many banks in Nigeria rely on Government liabilities as a core source of funding. Nigeria’s federal structure means countless Government deposits at every level of Government and across the 36 states. This is seldom the case in the rest of Africa, which have less federal structures, and where Government deposits are normally tightly held by state owned banks.

Payment services are playing an increasingly important role in banking on the continent. As a smaller player the terms on which a bank’s customers can use other banks infrastructure is a key driver of the success of a retail strategy. Unfortunately in many African countries accessing other banks ATM’s is extremely expensive, if it is possible at all, and this can kill an emerging retail banking proposition.

How then can Nigerian Banks prosper:

– Sales and service culture. The level of competition in the Nigerian market has forced Nigerian banks to perfect a sales and service culture that exceeds that of many other banks operating on the continent. As new entrants unable to offer scale or distribution, high quality service must be the central plank of the strategy, but managing service standards across a wide network of operations requires considerable attention to systems and processes, and regular benchmarking.

– Faster, smarter credit processes. Credit approval times and process across many banks in Africa significantly lag those in more developed markets. A Nigerian “can do attitude” to credit approvals could shake up the market, and will be key to winning market share

– Grow the franchise Across Africa, banks that have large networks capture a disproportionate share of liabilities and profits. At home Nigerian banks have been very aggressive in their role out of the branch and ATM infrastructure. This is a lesson that should not be forgotten in their foreign operations.

– Get the segmentation right: understanding which segments are most likely to be captured and aggressively focusing the proposition on these segments, will be essential to growing the business with a sustainable risk profile.

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Bank Secrecy

Bank secrecy is a practice that prevents the financial institution from revealing the information of the customers’ accounts. The Swiss Banking Act of 1934 originally introduced the legal principle. It was introduced after a public scandal took place in France. M. P. Fabien revealed that several rich French people are trying to avoid tax by keeping their money in the Bank of Switzerland. Fabien criticized them because Switzerland is lending the money of these people to Germany. From that time onwards, many people started to criticize Switzerland for encouraging illegal activities such as laundering, embezzlement of the money, and etc.

The purpose of inventing bank secrecy act is to enforce the security of the bank account holders. A financial institution that practices the legal principle will not share information with the tax authorities, government from foreign country, and the local government. However, if the Swiss judge demands the information, the bank has to reveal it.

Some governments criticize it as contributing to the underground criminal activity. There are more criticisms on bank secrecy after the September 11 event occurred. In bank secrecy, the bank cannot reveal the account information of a customer unless someone filed a complaint. When a third party requests for the account information, the bank representative will use his discretion. Every staff that works at the bank must obey the legal principle. The legal principle will protect the client and not the bank.

The banking secrecy is based on two laws including civil law and banking law. In civil law, the financial institution must keep the client bank information as a secret and never reveal to anyone. In banking law, the banker will get fine or imprisonment if he violated the rule of bank secrecy and revealed the bank account information. In some countries such as Switzerland, the banks use numbered account to hide the identity of the client. In Switzerland, the bank must know the identity of the client. However, the bank is allowed to replace the name of the account holder with a number. Numbered accounts can be used on various types of bank accounts including checking account, deposit account, and etc. By using numbered account, only the bank knows the account holder’s identity. Since the name is shown as number to the public, no one will ever know the real identity of the account holder. The client can waive the bank secrecy if he doesn’t want this kind of protection. The bank has no absolute decision to waive the bank secrecy.

There are many reasons why people like secrecy. Secrecy can be used for bad and good reasons. One of the reasons that people use bank secrecy is to protect their accounts from criminals. Criminals in certain countries are able to gain access to the bank information of the customers. Because of this risk, it is necessary that bank follow the bank secrecy principle to protect customers from all kinds of criminals such as identity thieves. Besides, secrecy can also protect the clients from spongers. Examples of spongers that are likely to find out about the bank information include beggars, salesman and etc.

Liquid wealth tends to attract a lot of publicity. With bank secrecy, your bank information will no longer become public. In addition, it can protect you from the press. Many magazines like to search for the bank information of rich people and publish the rich list. If your account is protected, the magazine editor won’t be able to find out the information. Many factors are used to determine the wealth of a person. It can also prevent the money from being confiscated in the event that you file for bankruptcy. If you don’t want people to know the amount of money in your bank, you should use banking privacy.

Newton Gang Robs Two Banks in One Night

On January 9, 1921, the Newton Gang drove into Hondo, Texas, a small town 30 miles west of San Antonio, to rob one of the two banks in town. It was just past midnight and the temperature was near freezing.

The Newtons knew the night watchman in Hondo, and as was his habit, they found him huddled around a pot-bellied stove in the depot. They cut all of the telephone wires and then went back to check on the night watchman. He had not budged from his spot by the stove so Joe was placed across the street as a lookout while the rest went to the bank.

In his 1979 interview, Willis proudly told his version of the story:

“Sometime you just get lucky ’cause they had left the vault door open. They had left it unlocked so we didn’t need no nitro or nothing. We jimmied the window, walked over to the vault, tried the handle and she opened! You would be surprised how many times them banks would just close the door so it looked locked during the night.

“We had the vault cleaned out in no time and went to see if the night watchman was still in the depot. Sure enough, he was reading a magazine and drinking coffee by the stove. Well hell, we figured we had plenty of time so we’d go over to the other bank and give it a try. I kept Joe and Doc watching the night marshal while Jess and I went down to the other bank.

“We got inside that bank and cleaned it out. Damn, two banks in one night and the night marshal, he never come out of the depot!”

The local newspaper, the Hondo Anvil Herald, carried the story with a splash headline:

Yeggs Rob Hondo Banks

One of the Most Daring Robberies Ever Staged in Texas Occurred Here Sunday Morning

The people of Hondo were amazed and angered Sunday morning when it became known that both banks had been entered by yeggs, between midnight and daylight, and robbed of both money and valuables. Entrance to the First National Bank was effected by forcing the front doors; while the entrance to the State Bank was effected by prizing down the bars over the last window in the alley between Parker’s and the bank.

The newspaper went on to give an elaborate description of the robbery:

Owing to most of the money in both banks being in the money safes, with time locks set, the loss in cash was not serious, the First National losing a total of $2,814 while in the matter of actual cash loss the State Bank was a little more fortunate, its loss being $1,879; both banks losing a total of $4,694 nearly all of which was silver coin.

The funds of both banks were covered by burglary insurance, consequently neither will suffer loss. [Just like Willis had assured his brothers.]

Owners of private boxes, who had put their valuables in the vaults of the banks, are the heaviest losers, and their actual loss will not be definitely known for some time-probably a month-as the owners of the boxes are the only ones who can clear up the loss, the officials of the banks not being advised of the contents of the boxes.

The safety deposit box owners had cash, government bonds, War Savings Stamps, jewelry, and other valuables in their boxes so it was impossible to determine the exact amount taken in the robbery. Estimates of as high as $30,000 were never confirmed.

The article continued to describe the “safe experts:’

… That the robbers were experts is borne out by the fact that they were able to work the combination on the vault of the First National Bank. [Willis said it was left unlocked.] They were also experts in the use of explosive, the vault doors of the State Bank being blown open by one of the most powerful explosives known-TNT [ Willis swore in his interview that he never used dynamite-only nitroglycerine.]

The vaults were thoroughly ransacked and the floors were strewn with papers about two feet thick.

From the thoroughness with which the robbers made their search for securities it is evident that they spent two hours or more in the vaults of the banks and the private boxes of the customers are in a sad plight, most of them showing that they were beat open by some heavy instrument, probably with a sledgehammer that had been stolen from the blacksmith shop of Mask & Co.

… That the robbers were no tyros (archaic word meaning beginners) in the business of robbing is again borne out by the fact that they took every precaution against being apprehended by the possession of jewelry, gold coins, and so forth, which might lead to their identity. The floors of the vaults were literally strewn with such articles as might lead to their detection. Notes and other articles of value that could not be turned into money were cast aside and left behind.

It is generally believed that the band was composed of from six to eight men, and that both banks were robbed simultaneously, a gang being assigned to each bank.

Another circumstance that indicates that the robbers were not new to the game of bank robbing is borne out by the fact that every telephone line in town was cut, apparently, before the banks were robbed. And this part of their plans was carried out most effectively and by an expert telephone man.

… Cables were severed, apparently with saws, and single wires were cut with wire clippers. Only three telephones connected with the local exchange were working Sunday morning.

The robbery was discovered by the night watchman about five o’clock Sunday morning and immediately reported to Deputy Sheriff C.J. Bless.

… Harry Crouch, our local telegraph operator, was summonsed and messages were sent east and west in an effort to intercept the robbers, but as far as the general public is advised, nothing was learned as to the direction in which the robbers went.

Detectives from San Antonio and the surrounding area converged on the Hondo banks searching for clues to the duel-heist robbery.

… One of the most remarkable coincidences of this whole business is that these robberies could have occurred right in the heart of the town and not more than 200 feet apart, and not one among our people being any the wiser until daylight it was revealed what had transpired, and that too, it was since developed that the night watchman and the two other men were in the waiting room of the depot, not more than sixty yards from the front doors of the First National Bank, while the robbery was being accomplished. The robbers must have done their work very silently to avoid detection. [It is hard to image a “silent” explosion of nitroglycerine.]

The word the newspaper used for the night burglars was “yeggs,” a popular vernacular expression of the era. It is interesting to compare the newspaper reporting to Willis’ account in which the vault of the First National Bank had been left unlocked and they used nitroglycerine (rather than TNT) to blow the vault door on the State Bank. Even more interesting was the fact that there were no follow up articles on the robbery. There was not a single mention of the multi-bank burglary over the ensuing months-although it contained large advertisements from both banks. It was as if both banks had never been robbed.

The Galveston Daily News on January 10 reported the robbery describing a “clew” that proved to be a red herring:

Robber Heel May Lead to Arrest

Telephone Connections Cut When Banks at Hondo Are Looted

San Antonio, Texas-January 10-A rubber heel, lost from a shoe, may lead to the identification of the bank robbers who made a successful haul of $20,000 from the First National Bank of Hondo and the Hondo State Bank early Sunday morning.

The bank robbers gained entrance to the two banks by prying the iron bars loose from rear windows of the buildings and manipulating the combinations of the vault in the First National Bank, but blew off the door of the vault in the state bank.

The haul was made from the safety deposit boxes in both banks, the robbers obtaining only $1,500 in cash from the First National and $29,350 of the state bank’s money. The smaller vault safes in both institutions were untouched.

The balance of the loot, it is estimated by officers at the two banks, was secured from owners of safety deposit boxes in the banks. Hondo was not aware of the visit of the bank robbers until almost noon Sunday, when the open windows at the rear of the two bank buildings were discovered.

Heel lost in bank.

Sheriff J.S. Baden, during his investigation was given the lost rubber heel, which had been found in front of the vault of the First National Bank. Further investigation disclosed a set of burglar tools consisting of a pipe wrench, saw, and chisel, which had been left by the robbers. These however are not considered as important for they are of a standard make, easily purchased at any hardware store.

Just outside of the window through which the robbers entered the state bank, Sheriff Baden found the numerals 13,555 scratched on the brick work. This, bank officials believe, indicates the amount the robbers secured from the deposit boxes in the bank. [This curious piece of information appears to have been just another “red herring.”]

Sheriff Baden believes the robberies were committed by a band of six men, who sent an advance guard of two into Hondo last week.

… Hondo citizens, who were up at an early hour Sunday morning, reported to the Sheriff that they saw a high-powered automobile leaving the outskirts of town occupied by six men. These, the Sheriff believes, were the Hondo robbers.

[Ironically] Sheriff Baden suffered a loss by the early morning visit of the robbers, as his safety deposit box in the First National Bank was broken open and $300 in stamps and $150 in bonds were taken. A $100 Liberty bond, the property of his son O.J. Baden, of Donna, was left in the box.

In light of the erroneous “clews’, the Newtons were never tried for the Hondo bank robberies.

Willis Newton was born in 1889 and died in 1979, making him the longest living Texas outlaw. He and the Newton Gang hit trains and banks in the early 1920s but their biggest haul occurred in 1924 when they robbed a train outside of Rondout, Illinois-getting away with $3,000,000. They still hold the record for the biggest train robbery in U.S. history.

Overview of Zimbabwean Banking Sector (Part One)

Entrepreneurs build their business within the context of an environment which they sometimes may not be able to control. The robustness of an entrepreneurial venture is tried and tested by the vicissitudes of the environment. Within the environment are forces that may serve as great opportunities or menacing threats to the survival of the entrepreneurial venture. Entrepreneurs need to understand the environment within which they operate so as to exploit emerging opportunities and mitigate against potential threats.

This article serves to create an understanding of the forces at play and their effect on banking entrepreneurs in Zimbabwe. A brief historical overview of banking in Zimbabwe is carried out. The impact of the regulatory and economic environment on the sector is assessed. An analysis of the structure of the banking sector facilitates an appreciation of the underlying forces in the industry.
Historical Background

At independence (1980) Zimbabwe had a sophisticated banking and financial market, with commercial banks mostly foreign owned. The country had a central bank inherited from the Central Bank of Rhodesia and Nyasaland at the winding up of the Federation.

For the first few years of independence, the government of Zimbabwe did not interfere with the banking industry. There was neither nationalisation of foreign banks nor restrictive legislative interference on which sectors to fund or the interest rates to charge, despite the socialistic national ideology. However, the government purchased some shareholding in two banks. It acquired Nedbank’s 62% of Rhobank at a fair price when the bank withdrew from the country. The decision may have been motivated by the desire to stabilise the banking system. The bank was re-branded as Zimbank. The state did not interfere much in the operations of the bank. The State in 1981 also partnered with Bank of Credit and Commerce International (BCCI) as a 49% shareholder in a new commercial bank, Bank of Credit and Commerce Zimbabwe (BCCZ). This was taken over and converted to Commercial Bank of Zimbabwe (CBZ) when BCCI collapsed in 1991 over allegations of unethical business practices.

This should not be viewed as nationalisation but in line with state policy to prevent company closures. The shareholdings in both Zimbank and CBZ were later diluted to below 25% each.
In the first decade, no indigenous bank was licensed and there is no evidence that the government had any financial reform plan. Harvey (n.d., page 6) cites the following as evidence of lack of a coherent financial reform plan in those years:

– In 1981 the government stated that it would encourage rural banking services, but the plan was not implemented.
– In 1982 and 1983 a Money and Finance Commission was proposed but never constituted.
– By 1986 there was no mention of any financial reform agenda in the Five Year National Development Plan.

Harvey argues that the reticence of government to intervene in the financial sector could be explained by the fact that it did not want to jeopardise the interests of the white population, of which banking was an integral part. The country was vulnerable to this sector of the population as it controlled agriculture and manufacturing, which were the mainstay of the economy. The State adopted a conservative approach to indigenisation as it had learnt a lesson from other African countries, whose economies nearly collapsed due to forceful eviction of the white community without first developing a mechanism of skills transfer and capacity building into the black community. The economic cost of inappropriate intervention was deemed to be too high. Another plausible reason for the non- intervention policy was that the State, at independence, inherited a highly controlled economic policy, with tight exchange control mechanisms, from its predecessor. Since control of foreign currency affected control of credit, the government by default, had a strong control of the sector for both economic and political purposes; hence it did not need to interfere.

Financial Reforms

However, after 1987 the government, at the behest of multilateral lenders, embarked on an Economic and Structural Adjustment Programme (ESAP). As part of this programme the Reserve Bank of Zimbabwe (RBZ) started advocating financial reforms through liberalisation and deregulation. It contended that the oligopoly in banking and lack of competition, deprived the sector of choice and quality in service, innovation and efficiency. Consequently, as early as 1994 the RBZ Annual Report indicates the desire for greater competition and efficiency in the banking sector, leading to banking reforms and new legislation that would:

– allow for the conduct of prudential supervision of banks along international best practice
– allow for both off-and on-site bank inspections to increase RBZ’s Banking Supervision function and
– enhance competition, innovation and improve service to the public from banks.

Subsequently the Registrar of Banks in the Ministry of Finance, in liaison with the RBZ, started issuing licences to new players as the financial sector opened up. From the mid-1990s up to December 2003, there was a flurry of entrepreneurial activity in the financial sector as indigenous owned banks were set up. The graph below depicts the trend in the numbers of financial institutions by category, operating since 1994. The trend shows an initial increase in merchant banks and discount houses, followed by decline. The increase in commercial banks was initially slow, gathering momentum around 1999. The decline in merchant banks and discount houses was due to their conversion, mostly into commercial banks.

Source: RBZ Reports

Different entrepreneurs used varied methods to penetrate the financial services sector. Some started advisory services and then upgraded into merchant banks, while others started stockbroking firms, which were elevated into discount houses.

From the beginning of the liberalisation of the financial services up to about 1997 there was a notable absence of locally owned commercial banks. Some of the reasons for this were:

– Conservative licensing policy by the Registrar of Financial Institutions since it was risky to licence indigenous owned commercial banks without an enabling legislature and banking supervision experience.
– Banking entrepreneurs opted for non-banking financial institutions as these were less costly in terms of both initial capital requirements and working capital. For example a merchant bank would require less staff, would not need banking halls, and would have no need to deal in costly small retail deposits, which would reduce overheads and reduce the time to register profits. There was thus a rapid increase in non-banking financial institutions at this time, e.g. by 1995 five of the ten merchant banks had commenced within the previous two years. This became an entry route of choice into commercial banking for some, e.g. Kingdom Bank, NMB Bank and Trust Bank.

It was expected that some foreign banks would also enter the market after the financial reforms but this did not occur, probably due to the restriction of having a minimum 30% local shareholding. The stringent foreign currency controls could also have played a part, as well as the cautious approach adopted by the licensing authorities. Existing foreign banks were not required to shed part of their shareholding although Barclay’s Bank did, through listing on the local stock exchange.

Harvey argues that financial liberalisation assumes that removing direction on lending presupposes that banks would automatically be able to lend on commercial grounds. But he contends that banks may not have this capacity as they are affected by the borrowers’ inability to service loans due to foreign exchange or price control restrictions. Similarly, having positive real interest rates would normally increase bank deposits and increase financial intermediation but this logic falsely assumes that banks will always lend more efficiently. He further argues that licensing new banks does not imply increased competition as it assumes that the new banks will be able to attract competent management and that legislation and bank supervision will be adequate to prevent fraud and thus prevent bank collapse and the resultant financial crisis. Sadly his concerns do not seem to have been addressed within the Zimbabwean financial sector reform, to the detriment of the national economy.

The Operating Environment

Any entrepreneurial activity is constrained or aided by its operating environment. This section analyses the prevailing environment in Zimbabwe that could have an effect on the banking sector.


The political environment in the 1990s was stable but turned volatile after 1998, mainly due to the following factors:

– an unbudgeted pay out to war veterans after they mounted an assault on the State in November 1997. This exerted a heavy strain on the economy, resulting in a run on the dollar. Resultantly the Zimbabwean dollar depreciated by 75% as the market foresaw the consequences of the government’s decision. That day has been recognised as the beginning of severe decline of the country’s economy and has been dubbed “Black Friday”. This depreciation became a catalyst for further inflation. It was followed a month later by violent food riots.
– a poorly planned Agrarian Land Reform launched in 1998, where white commercial farmers were ostensibly evicted and replaced by blacks without due regard to land rights or compensation systems. This resulted in a significant reduction in the productivity of the country, which is mostly dependent on agriculture. The way the land redistribution was handled angered the international community, that alleges it is racially and politically motivated. International donors withdrew support for the programme.
– an ill- advised military incursion, named Operation Sovereign Legitimacy, to defend the Democratic Republic of Congo in 1998, saw the country incur massive costs with no apparent benefit to itself and
– elections which the international community alleged were rigged in 2000,2003 and 2008.

These factors led to international isolation, significantly reducing foreign currency and foreign direct investment flow into the country. Investor confidence was severely eroded. Agriculture and tourism, which traditionally, are huge foreign currency earners crumbled.

For the first post independence decade the Banking Act (1965) was the main legislative framework. Since this was enacted when most commercial banks where foreign owned, there were no directions on prudential lending, insider loans, proportion of shareholder funds that could be lent to one borrower, definition of risk assets, and no provision for bank inspection.

The Banking Act (24:01), which came into effect in September 1999, was the culmination of the RBZ’s desire to liberalise and deregulate the financial services. This Act regulates commercial banks, merchant banks, and discount houses. Entry barriers were removed leading to increased competition. The deregulation also allowed banks some latitude to operate in non-core services. It appears that this latitude was not well delimited and hence presented opportunities for risk taking entrepreneurs. The RBZ advocated this deregulation as a way to de-segment the financial sector as well as improve efficiencies. (RBZ, 2000:4.) These two factors presented opportunities to enterprising indigenous bankers to establish their own businesses in the industry. The Act was further revised and reissued as Chapter 24:20 in August 2000. The increased competition resulted in the introduction of new products and services e.g. e-banking and in-store banking. This entrepreneurial activity resulted in the “deepening and sophistication of the financial sector” (RBZ, 2000:5).

As part of the financial reforms drive, the Reserve Bank Act (22:15) was enacted in September 1999.

Its main purpose was to strengthen the supervisory role of the Bank through:
– setting prudential standards within which banks operate
– conducting both on and off-site surveillance of banks
– enforcing sanctions and where necessary placement under curatorship and
– investigating banking institutions wherever necessary.

This Act still had deficiencies as Dr Tsumba, the then RBZ governor, argued that there was need for the RBZ to be responsible for both licensing and supervision as “the ultimate sanction available to a banking supervisor is the knowledge by the banking sector that the license issued will be cancelled for flagrant violation of operating rules”. However the government seemed to have resisted this until January 2004. It can be argued that this deficiency could have given some bankers the impression that nothing would happen to their licences. Dr Tsumba, in observing the role of the RBZ in holding bank management, directors and shareholders responsible for banks viability, stated that it was neither the role nor intention of the RBZ to “micromanage banks and direct their day to day operations. “

It appears though as if the view of his successor differed significantly from this orthodox view, hence the evidence of micromanaging that has been observed in the sector since December 2003.
In November 2001 the Troubled and Insolvent Banks Policy, which had been drafted over the previous few years, became operational. One of its intended goals was that, “the policy enhances regulatory transparency, accountability and ensures that regulatory responses will be applied in a fair and consistent manner” The prevailing view on the market is that this policy when it was implemented post 2003 is definitely deficient as measured against these ideals. It is contestable how transparent the inclusion and exclusion of vulnerable banks into ZABG was.

A new governor of the RBZ was appointed in December 2003 when the economy was on a free-fall. He made significant changes to the monetary policy, which caused tremors in the banking sector. The RBZ was finally authorised to act as both the licensing and regulatory authority for financial institutions in January 2004. The regulatory environment was reviewed and significant amendments were made to the laws governing the financial sector.

The Troubled Financial Institutions Resolution Act, (2004) was enacted. As a result of the new regulatory environment, a number of financial institutions were distressed. The RBZ placed seven institutions under curatorship while one was closed and another was placed under liquidation.

In January 2005 three of the distressed banks were amalgamated on the authority of the Troubled Financial Institutions Act to form a new institution, Zimbabwe Allied Banking Group (ZABG). These banks allegedly failed to repay funds advanced to them by the RBZ. The affected institutions were Trust Bank, Royal Bank and Barbican Bank. The shareholders appealed and won the appeal against the seizure of their assets with the Supreme Court ruling that ZABG was trading in illegally acquired assets. These bankers appealed to the Minister of Finance and lost their appeal. Subsequently in late 2006 they appealed to the Courts as provided by the law. Finally as at April 2010 the RBZ finally agreed to return the “stolen assets”.

Another measure taken by the new governor was to force management changes in the financial sector, which resulted in most entrepreneurial bank founders being forced out of their own companies under varying pretexts. Some eventually fled the country under threat of arrest. Boards of Directors of banks were restructured.

Economic Environment

Economically, the country was stable up to the mid 1990s, but a downturn started around 1997-1998, mostly due to political decisions taken at that time, as already discussed. Economic policy was driven by political considerations. Consequently, there was a withdrawal of multi- national donors and the country was isolated. At the same time, a drought hit the country in the season 2001-2002, exacerbating the injurious effect of farm evictions on crop production. This reduced production had an adverse impact on banks that funded agriculture. The interruptions in commercial farming and the concomitant reduction in food production resulted in a precarious food security position. In the last twelve years the country has been forced to import maize, further straining the tenuous foreign currency resources of the country.

Another impact of the agrarian reform programme was that most farmers who had borrowed money from banks could not service the loans yet the government, which took over their businesses, refused to assume responsibility for the loans. By concurrently failing to recompense the farmers promptly and fairly, it became impractical for the farmers to service the loans. Banks were thus exposed to these bad loans.

The net result was spiralling inflation, company closures resulting in high unemployment, foreign currency shortages as international sources of funds dried up, and food shortages. The foreign currency shortages led to fuel shortages, which in turn reduced industrial production. Consequently, the Gross Domestic Product (GDP) has been on the decline since 1997. This negative economic environment meant reduced banking activity as industrial activity declined and banking services were driven onto the parallel rather than the formal market.

As depicted in the graph below, inflation spiralled and reached a peak of 630% in January 2003. After a brief reprieve the upward trend continued rising to 1729% by February 2007. Thereafter the country entered a period of hyperinflation unheard of in a peace time period. Inflation stresses banks. Some argue that the rate of inflation rose because the devaluation of the currency had not been accompanied by a reduction in the budget deficit. Hyperinflation causes interest rates to soar while the value of collateral security falls, resulting in asset-liability mismatches. It also increases non-performing loans as more people fail to service their loans.

Effectively, by 2001 most banks had adopted a conservative lending strategy e.g. with total advances for the banking sector being only 21.7% of total industry assets compared to 31.1% in the previous year. Banks resorted to volatile non- interest income. Some began to trade in the parallel foreign currency market, at times colluding with the RBZ.

In the last half of 2003 there was a severe cash shortage. People stopped using banks as intermediaries as they were not sure they would be able to access their cash whenever they needed it. This reduced the deposit base for banks. Due to the short term maturity profile of the deposit base, banks are normally not able to invest significant portions of their funds in longer term assets and thus were highly liquid up to mid-2003. However in 2003, because of the demand by clients to have returns matching inflation, most indigenous banks resorted to speculative investments, which yielded higher returns.

These speculative activities, mostly on non-core banking activities, drove an exponential growth within the financial sector. For example one bank had its asset base grow from Z$200 billion (USD50 million) to Z$800 billion (USD200 million) within one year.

However bankers have argued that what the governor calls speculative non-core business is considered best practice in most advanced banking systems worldwide. They argue that it is not unusual for banks to take equity positions in non-banking institutions they have loaned money to safeguard their investments. Examples were given of banks like Nedbank (RSA) and J P Morgan (USA) which control vast real estate investments in their portfolios. Bankers argue convincingly that these investments are sometimes used to hedge against inflation.

The instruction by the new governor of the RBZ for banks to unwind their positions overnight, and the immediate withdrawal of an overnight accommodation support for banks by the RBZ, stimulated a crisis which led to significant asset-liability mismatches and a liquidity crunch for most banks. The prices of properties and the Zimbabwe Stock Exchange collapsed simultaneously, due to the massive selling by banks that were trying to cover their positions. The loss of value on the equities market meant loss of value of the collateral, which most banks held in lieu of the loans they had advanced.

During this period Zimbabwe remained in a debt crunch as most of its foreign debts were either un-serviced or under-serviced. The consequent worsening of the balance of payments (BOP) put pressure on the foreign exchange reserves and the overvalued currency. Total government domestic debt rose from Z$7.2 billion (1990) to Z$2.8 trillion (2004). This growth in domestic debt emanates from high budgetary deficits and decline in international funding.


Due to the volatile economy after the 1990s, the population became fairly mobile with a significant number of professionals emigrating for economic reasons. The Internet and Satellite television made the world truly a global village. Customers demanded the same level of service excellence they were exposed to globally. This made service quality a differential advantage. There was also a demand for banks to invest heavily in technological systems.

The increasing cost of doing business in a hyperinflationary environment led to high unemployment and a concomitant collapse of real income. As the Zimbabwe Independent (2005:B14) so keenly observed, a direct outcome of hyperinflationary environment is, “that currency substitution is rife, implying that the Zimbabwe dollar is relinquishing its function as a store of value, unit of account and medium of exchange” to more stable foreign currencies.

During this period an affluent indigenous segment of society emerged, which was cash rich but avoided patronising banks. The emerging parallel market for foreign currency and for cash during the cash crisis reinforced this. Effectively, this reduced the customer base for banks while more banks were coming onto the market. There was thus aggressive competition within a dwindling market.

Socio-economic costs associated with hyperinflation include: erosion of purchasing power parity, increased uncertainty in business planning and budgeting, reduced disposable income, speculative activities that divert resources from productive activities, pressure on the domestic exchange rate due to increased import demand and poor returns on savings. During this period, to augment income there was increased cross border trading as well as commodity broking by people who imported from China, Malaysia and Dubai. This effectively meant that imported substitutes for local products intensified competition, adversely affecting local industries.

As more banks entered the market, which had suffered a major brain drain for economic reasons, it stood to reason that many inexperienced bankers were thrown into the deep end. For example the founding directors of ENG Asset Management had less than five years experience in financial services and yet ENG was the fastest growing financial institution by 2003. It has been suggested that its failure in December 2003 was due to youthful zeal, greed and lack of experience. The collapse of ENG affected some financial institutions that were financially exposed to it, as well as eliciting depositor flight leading to the collapse of some indigenous banks.

Is It Time to Say Bye to Your Big Bank?

Big banks get the blame for the financial crisis and all the other recent horrors,from the foreclosure mess to the JP Morgan Chase trading gaffe. Yetfor most people, big banks are most culpable for their high fees and poor service.

Luckily, there are alternatives. Credit unions, for instance. Let’s compare them:

What makes them different? Large commercial banks are owned by their shareholders and of course are a for-profit business, while credit unions are owned by their depositors and are not-for-profit. That does not mean that the credit unions are not profitable (i.e., revenues exceed expenses) rather they seek to plow their excess earnings back into the business for the benefit of the depositors, also known as members, owners and shareholders.

Both institutions have deposit insurance up to $250,000 per account. For banks, this is through the government’s Federal Deposit Insurance Corporation (FDIC); for credit unions, the National Credit Union Administration (NCUA), also a federal agency.1

Traditionally, commercial banks made a profit by lending depositors’ money to borrowers at greater interest than they pay to the depositors. Today, they make most of their profit through investment transactions, commissions, penalties and an ever-growing list of customer user fees.

Credit unions pledge to put customer service before profit motive. They are structured just like banks except their boards of directors are typically made up of volunteers elected by the membership. Banks offers their services to the world at large; credit unions offer services only to those meeting eligibility requirements. You may qualify to join a CU because of your employer, your industry, a union or guild membership, a family member who has obtained membership, or even your home address.

Virtues and Vices of Scale. Now large banks have some clear advantages due to their scale. They offer many ATMs (some in foreign nations) and their branches are plentiful. They have many product offerings, and mortgage rates may be lower than at a CU. Sometimes, the large banks pay you cash bonuses just to sign up for products, like checking accounts with direct deposit.

Many credit unions offer better interest rates on checking, savings and money market accounts, and on long-term certificates of deposit. Fees on credit cards and terms on auto loans typically are much better, too.

However, many credit unions may not offer you the same array of services and products that you find at a big bank, and some still have only one or two branches. On the other hand, with the expansion of credit union networks, regional and nationwide access to money has really improved for CU members.2

Besides big banks and the credit unions, there is another option for you – community banks. Of all U.S. banks, 91% have assets under $1 billion and 34% under $100 million.3 The community banks are like credit unions, owned by depositors, yet like big banks they are a for-profit business.

A combined network, called Kasasa, of 128 community banks and credit unions across 35 states pooled their advertising and marketing resources and offer more competitive products to their customers.

Usually, community bankers are involved in community affairs, live in the areas that they serve, and see themselves as a part of the community. They also have a conservative management and investment philosophy, which explains why fewer of them needed federal bailout money. These banks can be particularly effective for small businesses: Lending decisions are made locally by people who know the community and its business climate. Lending criteria often consider character factors, as well as financial.

Big banks’ fee mania. Fees are out of hand. Big banks commonly charge $2 to $3 for foreign ATM withdrawals, which is basically 5% to get $40 out of the ATM. Big banks now charge account “maintenance” fees largely because they can. After the financial collapse, they are searching to replace lost profits. But maintaining your account is no more costly today for a big bank than it was five years ago.

Then come fees for not making minimum balance requirements. Many lenders hit you with a monthly charge in the range of $5 to $20 if your savings or checking account diminishes below a set dollar amount.

Next, overdraft fees and returned items fees of $20 to $40, which are penalties when you overdraw your account, or leave it overdrawn for a period of time.

When you apply for a mortgage or a business loan, there may be a loan origination fee or “processing fee” of $20 to $100 involved.

Need to check a deceased account holder’s balance? Make copies of deposit slips? Set up online banking? Obtain a reference letter pursuant to an international visa application? You name it, there’s typically a “service fee” for it at a big bank.

A big bank’s investment division may be modeled on a full-service brokerage, with commissions and fees exceeding those of discount brokers.

The good news is that you may be able to dodge some of these fees. Just about any bank will still give you free checking if you sign up for additional services such as a direct deposit arrangement. Many online banks will actually reimburse you for ATM fees. Finally, perhaps the best thing about credit unions is that they haven’t yet dreamed up fees for everything on earth.4


1 – [6/22/12]

2 – [3/5/12]

3 – ICBA article, “CB Facts”

4 – [10/3/11]