Are the central banks of the world all failing at the same time? Will I live long enough to care? If I die before I care, who will hold my assets?
Today’s everything bubble is global in scale and affects every financial market and banking institution. On a global level, outstanding personal, business, and government debt has approached a whopping $240 trillion. That’s more than 300% of global GDP. That’s a bubble that central banks are going to be unable to borrow their way out of.
There are no knights in shining armor on the horizon who are coming to the rescue, and central banks are basically helpless to do anything about it. Everyone’s out for themselves. They don’t really have time to think about us. With interest rates near zero in real terms and loaded up balance sheets, central banks essentially have no ammunition to fight with.
There is little room on a fiscal front either. According to Peter Diekmeyer at sprottmoney.com, U.S. public sector spending already exceeds 60%. Any further spending increases would come from wealth extraction from the productive areas of the economy. This in turn would crimp productivity even further.
Diekmeyer writes that China, which bailed out the world by borrowing tens of trillions of dollars following the 2008 financial crisis to stimulate demand, is also tapped out. If you’re an American, and you love misery, move over, because there’s plenty of company. Japan and Europe appear to be even worse off than we are.
DO AMERICAN BANKS HAVE BLACK HOLES TO FILL?
One of my clients who works in financial services and is of European descent recently told me that most of the banks in Europe have gone insolvent. She said she was trying to help take care of a friend’s deceased mother’s estate when she learned that legally it appears European banks have the right to borrow a client’s funds for as long as they like for the purpose of filling “Black Holes” in the banks coffers. My first question was why would the European banks have “Black holes” that need to be filled? Isn’t that when it’s time for the institution to dissolve due to insolvency? Where’s the suspect government when we need them?
“Barclays has a 30-billion Sterling ‘Black Hole,'” my client said. RBS, the Royal Bank of Scotland, has a “4-billion ‘Black Hole'”. Deutsche Bank is “awash with over-valued derivatives,” I was told. And the list of failing interconnected European banks goes on and on, and it doesn’t end there.
Santander and BBVA are said to be disposing of their South American and Central American holdings, while National Westminster is now only interested in mortgages, car loans, student loans, and the like. Many of the banks are under the control of the European Central Banks (ECB), and they cannot do anything without ECB permission. I was told the European banking system is in a “bloody mess” and only getting worse. It’s like a “fever”, with the position of European banks being “terminal illness.” My client could have been talking about the American banking system as well.
Tyler Durden at ZeroHedge agrees with my client. Global banks are tumbling. Durden recently reported that the stock process of 16 of the most “Systemically Important Financial Institutions” (SIFIs) in the world are now in bear market territory (down by 20% or more from their recent highs in dollar terms).
The 16 SIFIs considered to be in “bear market territory” are listed as: Deutsche Bank, ICBC, Prudential Financial, Credit Suisse, Bank of China, Mitsubishi UFJ Financial Group, Nordea, UniCredit Agricole, ING, Santander, Societe Generale, BNP Paribas, UBS, Agricultural Bank of China, and AXA.
DO JAPANESE BANKS HAVE BLACK HOLES TO FILL?
The infection appears to be systemic in global banking. Maybe “Black holes” are contagious. The Japanese banking business model is experiencing changes that reflect the same financial issues facing their “Western” global financial brethren. In this instance we’ll be nice and say the problem with Japanese banks is that they’re having liquidity problems. That’s because the little liquidity they do have, outside of their debt, is flowing dither and yonder. That’s why they’re working hard to keep a hold of the more than $460 billion in wealth that is left by their customers each year when they die.
In an article entitled, Japan’s Banks Want to Keep Hold of Dead Customers’ Savings, authors Yuki Hagiwara, Gareth Allan, and Takako Taniguchi write that more people are dying annually in Japan which results in smaller banks struggling to keep their capital fluid. Not only are the banks losing their customers they are losing their customers’ savings – which hurts even more – as heirs migrate to larger cities where the biggest lenders hold banking interests.
It is estimated that regional banks lose 60% of the funds that are subject to inheritance. Coupled with the fact that one quarter of the Japanese population is over 65 years of age, local Japanese banks are turning to trusts to secure the next generation of clients and their deposits. The banks are selling what are called “testamentary substitute trusts”, an inheritance device that helps to quickly unlock funds when an estate holder dies. This business model also sets up the banks to develop relationships with the heirs of the trusts they create.
The problem with some of the bigger Japanese central banks is that many of the dying elderly live near or around bigger cities like Tokyo, and when the customers die, their children take their inheritances with them – away from the major financial centers. The Bloomberg article cites a Capgemini Financial Services Analysis from 2017 which says that the assets of wealthy Japanese have grown to $7 trillion. The Japanese central banks do not want to lose this money. There are “Black holes” to be filled, bank operations to be covered.
These testamentary trusts began about ten years ago and they have grown in popularity. The trusts are set up to offer heirs immediate expenses to cover funeral costs, and estate holders can choose to leave lump sums in the trust or have their funds distributed gradually over time. We decided to take ours all in one lump sum, right now, please, thank you.
IS HOLDING DEAD CUSTOMERS’ SAVINGS THE SOLUTION?
Retaining inheritance assets helps banks reduce their dependence on income that’s eroding as Japan’s rock-bottom interest rates squeeze margins, the Bloomberg article says. Banks have been urged to find other ways to build a sustainable business model, and holding on to dead customers’ savings appears to be a part of that new model.
Succession is good business for regional banks in Japan and elsewhere in a financially stagnant world. The Japanese financial industry says demand for testamentary trusts increases when a population ages, and banks can earn fees by selling them. This kind of financial pattern and worse acts as fate for much of our aging population. The big guys are squeezing what little margin the little guys have left. And the big guys are going after other big guys’ margins as well. There’s little margin left to be squeezed, it’s a dog-eat-dog world, and the aging population is caught in between.
The amount of financial assets passed on to successors is expected to grow because the number of citizens that are expected to die will increase over the next two decades. Many of those estates are large. Japan has many millionaires who are getting old. So does the United States. One can only wonder if banks in the U.S. have begun targeting the aging population to see who has what funds, and how best to retain them once their clients pass? And what happens if we as heirs to our aging parents do form a trust with a regional bank, and then the bank goes belly-up? Where we deposit our paychecks on Friday and no one at the bank shows up Monday for work, when we need some of our cash back? What happens to our testamentary trusts then? Who will be protecting my financial interests when I’m gone?