In 2020 we saw small businesses decimated in an unprecedented reaction to the worldwide novel Covid-19 outbreak. As a result of the subsequent global lockdowns, many businesses had to close their doors for two years or more. Many did not return. Our world changed forever. Not in our wildest nightmares could we have imagined such a scenario.
In this article we ask, what if we are heading for another catastrophe, the collapse of the banking system and what can entrepreneurs do to prepare for it?
Conspiracy Theory or not?
OK, so at first glance, just the mention of a banking collapse may bring thoughts of conspiracy theory mumbo jumbo but wait, there is historical evidence that shows such a collapse is possible.
In 2013 customers of two of the largest banks in Cyprus, The Bank of Cyprus and Laiki (Cyprus Popular) Bank lost billions when the two institutions imploded. Worst still, the ailing banks then dipped into customer’s savings to carry out what is known as a “Bail-in”.
Bail-in is technically referred to as:
A facility that provides relief to a financial institution such as a bank by cancelling some of the debt it owes its borrowers. This measure is taken when the institution is struggling with debt and is on the verge of failure. The point of the bail-in is to save the bank from falling into bankruptcy.
In other words, the bank will take your money in order to survive.
Laws enacted worldwide
But wait, I can hear what you’re saying, Cyprus is a small country, it could never happen in larger western economies. Well, not quite. Following the 2008-2009 recession and after bailing out many major banks, the US government put forward the Dodd-Frank Act, which allowed for the possibility of bail-ins. That act became law in 2010.
In the UK, the Banking Act of 2009 also allowed for the possibility of bail-ins and in 2021 the BOE released the ominously titled paper “Executing bail-in: an operational guide from the Bank of England”. In Canada, the CDIC Act allows Canadian banks to initiate bail-ins. Switzerland and all EU member states have all followed similar policies.
So, this is not a conspiracy theory, there is a possibility that should the banking system collapse the banks can legally take your money and use it to prop themselves up.
In fact, in 2018 a European Court rejected an appeal of 51 account holders who lost money in the Cyprus bail-in, stating, “The Court concludes that the individuals and companies which initiated the actions have not succeeded in demonstrating an infringement of the right to property…”
What can you do?
The first thing to do would be to protect your savings by diversifying your investment strategy. Do not keep large chunks of your business or personal funds in one account. Spread them out amongst different banking institutions.
Next, you should consider placing a proportion of your funds into assets that are outside of the banking system. Many consider gold, silver or cryptocurrency as viable options in a financial crisis. If you are considering cryptocurrency, ensure that this is kept in your individual wallet and not on a centralised exchange as those too are likely to be affected in a financial crisis.
Bear in mind that should the worst happen it may be impossible to move your funds as the banks will shut their doors as witnessed in the Cyprus case, so it’s important that you act early and prepare well in advance. It should be noted that should a major western bank collapse, the outflows of capital into the crypto and gold markets could make prices skyrocket and it may be almost impossible to purchase such assets to protect your funds during the crisis.
Final thoughts
Part of being an entrepreneur is having a vision for the future. Unfortunately, the future often comes with obstacles and pitfalls. As entrepreneurs, we need to ensure that we are prepared.
This article is not financial advice and is created for educational purposes only. You should do your own research when investing in cryptocurrency or any other financial assets.
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