Revolut Is My Money Safe

Is my money safe?

Almost a month after the start of the revolution the financial pain started kicking, companies cutting costs — firing employees and trimming wages — hospitals lacking supplies, essentials starting to go amiss, even banks designated by many as one of the causes of the problem are feeling the heat and tightening the rope on the cash dispursed.

Naturally, two topics have been mentioned increasingly: capital controls and haircuts. Is our money still at the bank? Would we come out of it unscathed? This piece is an attempt to clarify some of the misconceptions.

The $18 0 bn deposits. This number a source of joy to many is, in reality, a grave reason for concern. What people fail to realize is deposits are actually a debt of banks towards the people, not to confuse with the assets of the banks which represent what they do have! If we add to that the $20bn of banks capital (ie what they owe the shareholders) we get to $200bn of liabilities. These $200bn are invested as follows, $80bn with the government, $60bn with the private sector, $30bn the infamous BDL reserves, $15bn in Gold and $15bn in liquid assets. So if you have a $100 deposit at the bank, they've lent $40 of it to the government, $30 to your neighbor, $15 to the governor to defend the lira, $8 to buy gold and $7 which they might give you within 24h.

The Haircut is when the assets depreciate such as the total value of the assets is lower than $100 and as such the bank shareholders lose all their equity at which point you start losing from your deposit. If you were to liquidate all these assets now then clearly there would be a near impossibility to recoup the full $100. What would be your best way to recoup your money in the long term? Well with the government how about you exchange your $40 for a share in their companies, as for your neighbor $30 for a piece of land? In other terms a major risk transfer of real estate and infrastructure from the state and borrowers to the savers. No more risk-free returns, time for risky investments!

The tale of 2 pensioners. Imagine a retired individual with $1m of savings in each the US and Lebanon spending $75K a year on their lifestyle. The Lebanese pensioner depositing his $1m at the bank at 8% a year would find himself with roughly the same amount in his bank account in 10 years' time. The US pensioner, on the other hand, would be lucky to get more than 2% and would have spent more than half of it by then. So how can the Lebanese economy with negative growth and tiny exports finance the lifestyle of its pensioner when the booming American economy can't? It's either the Lebanese miracle or we need to adjust our lifestyle and forget about the help at home, the 2 cars per household, the early retirement…