As the impacts of COVID-19 continue to dominate economic analysis and media commentary, there has been little attention drawn to an industry that directly impacts the average, working citizen: the safest banks.
With interest rates, globally, hovering near 0% and Total Consumer Debt soaring to all time highs (take a look at the graphs below!), now is the time for the people to really question whether or not the bank they are using is indeed “safe.”
For those intimidated by what appears to be in-depth economic analysis: don’t. Common sense says 0% interest rates yield little-to-no profits for banks.
So, what do banks do in response? Lend.
As banks ramp up their lending programs, they run the risk of lending too much (Overleveraged), which would have horrendous consequences for the everyday person!
GLOBAL FINANCE QUOTE
Conveniently, the 2020 ranks have just been released for the quote-on-quote Safest Banks in the World.
For those curious of banks that have failed, check out Washington Mutual’s failure here.
One of the top, industry-respected reporters is, Global Finance. Every year, the global news and insight reporter releases a list of the world’s “safest banks.” Before jumping into their list, the evaluation parameters must be examined.
According to the 2020 report, found here:
Winners were selected through an evaluation of long-term foreign currency ratings- from Moody’s, Standard & Poor’s and Fitch- of the 500 largest banks worldwide
Without much subjectivity from Global Finance, winners were merely aggregated based on their ratings from the “accepted” credit-rating agencies… That begs the next question, how do the credit agencies determine their ratings?
Like the other credit-rating agencies (S&P & Fitch), Moody’s has a straightforward analysis process:
Without getting too much in the weeds, companies submit a rating application and have an analytical team assigned to their organization.
Once the due diligence is completed, the agencies will issue a rating:
Moody’s, for example, uses the formatting above to issue their ratings.
S&P and Fitch use nearly identical process and issue ratings with comparable formatting. Often teams, readers will see credit ratings displayed using multiple score reports.
Example: Apple has an AA+/Aa1 ratings profile
With that being said, there are significant financial interests at play in the credit rating process; like auditing, companies pay a fee to have their financials analyzed…
A downgrade in a credit profile will have significant impact on a company’s stock price and ultimately executives’ compensation.
So, what does that mean for the folks who want to think more about what bank has earned the right to store their money?
A skeptical perspective MUST be used when interpreting a credit report because the “average joe’s” best interest may not always be the driving factor behind corporate actions.
Luckin Coffee (Formerly, $LK)
Recently, a company shocked the market as revenue recognition fraud came to light that their audit did not highlight. See the results below:
Overnight, billions of dollars in shareholder value were wiped…
In short, Luckin Coffee fabricated transactions and failed to disclose material information to investors. 
However, the Company’s stock had been on an absolute terror and analysts projected Luckin Coffee to overtake Starbucks’s presence in China.
As one can see, the audit reports on The Company were not always flawless, and investors could’ve potentially avoided disaster had they been critical of the information presented to them.
For more information on the fall of Luckin Coffee, check out this article.
The Global Finance’s “Safest” Banks in the World for 2020
Without further ado, below is the list presented by Global Finance
Kreditanstalt fuer Wiederaufbau (KfW)
For the sixth consecutive year, KfW was declared the “World’s Safest Bank.” Why?
According to Moody’s, KfW’s “debt and deposit ratings are based on the guarantee framework provided by the Government of Germany. The guarantee framework comprises a maintenance obligation, as well as a full, explicit, and unconditional guarantee for the bank’s existing and future obligations in respect of money borrowed, bonds issues, and derivative transactions entered into by the bank.”
It must be great operating as a lender that is fully backed by the fourth largest economy in the world…
Granted there are “approved” guidelines for their business-model, rain or shine there will be never-ending support from one of the most credible economies in the world.
Zuercher Kantonalbank (ZKB)
Similar to KfW, ZKB has the deficiency guarantee provided by the Canton of Zurich, which results in low funding costs and strong market access even in a more stressed environment
Ultimately, the bank’s exposure to liabilities, risky or not, is protected by the good faith of the Swiss government.
Upon further analysis, the majority of banks presented in the Global Finance’s Top 50 list have the luxury of robust government support. Therefore, it is understandable why these banks are deemed the safest in the world.
However, for the sake of argument, what happens if there are failures of government or global fiat currencies?
Euro Pacific Bank
In the case of a systemic collapse, what’s the first thing people will do? Make a run on the banks.
As mentioned above, consumer lending is at an all-time high and banks’ reserves continue to move disproportionately. When the time comes for a wave of investors to pull their money out of the bank, the money won’t be there…
Euro Pacific Bank, however, is a Full-Reserve Bank and retains 100% liquidity, 100% deposit ratio, and zero loans.
What does that mean?
When the time comes for people to pull their assets from financial institutions, it will all be there!
The luxury of strong security comes at a price. As opposed to Bank of America or JP Morgan, where your money will earn interest (0.6%), Full-Reserve Banks charge a fee.
For example, Euro Pacific Bank charges a monthly maintenance fee of $5.00.
Zenus Bank is another industry-disrupting bank emerging out of Puerto Rico with a similar business model.
What Can You Do About Your Money?
After a brief analysis on the safety of banks and options for the average working-class person, the decision boils down to one thing: receive no interest or pay $60/year for comfort knowing your assets are tied up in a full-reserve bank?
Ultimately, 0.6% interest on a money market account is going to have little impact to one’s overall financial status.
Having the security of access to 100% of your account is way more important.
As Coronavirus continues to disrupt the economic system, trillions of dollars continue to be printed, and fed policy swirls out of control, take a second and determine if you’re comfortable with your bank.
- The Balance. “Washington Mutual and How it Went Bankrupt“
- Moody’s. “Ratings Process“
- The Motley Fool. “Why Luckin Coffee Stock Dropped 50% Today“
- Global Finance. “Global Finance Names the World’s 50 Safest Banks 2020“
- Moody’s. “Kreditanstalt fuer Wiederaufbau; Update to Credit Analysis“
- Moody’s. “Moody’s Confimrs Zuercher Kantonalbank’s Aaa Ratings
- Global Finance. “The Key Factor Shaking up the Rankings this Year is the Tightening of Regulatory Oversight Worldwide“