If 2022 was troubled for savers as I wrote in the end-of-year article: “ 2022 explained to the little saver ”, we can say that 2023 started with a bang.
Let’s try to retrace some significant dates of these first months:
The insurance company Eurolife is commissioned byIVASS (Institute of Supervision of Insurance Companies). For customers, a block was first placed on the redemption of their savings until March 30, then postponed to June 30 and perhaps extended by a few more months until someone saves the insurance company.
It fails Silicon Valley Bank followed a few days later by Signature Bank And Silvergate Bank
after almost 170 years of history one of the largest and most important banks in Europe collapses, Credit Suisse. It is then saved in the following days by the historic competitor UBS. The “chest” state of world finance, Switzerland, has also been violated.
It fails First Republic Bankthe 14th largest bank in the United States, only to be bought the following day by JP Morgan
Probably other dates will follow in the coming months that we could add to this list, because although the States and central banks are doing everything to ensure a certain stability, the market seems to have taken a direction and that is to clean up from too many past mistakes of bad management.
Financial and non-financial crises teach us a lot. We have learned since the last great recession of 2008/09 that any financial institution can crumble and fail even those banks considered to big to fail.
The objective of this article is certainly not to make a process of why these situations happen or to point the finger to blame someone, but rather to know how to avoid finding ourselves in a vortex in which we do not want to be.
When we are called to choose in conditions of uncertainty, as can happen to any consumer, the choice always falls on the thing:
1. less expensive (we like the deal)
2. more expensive (gives us the idea of quality)
3. better known (reassures us)
How to choose your bank well?
The first assessment that we often consider to be the most important concerns i costs. I choose the institution that costs less. True, but up to a point.
According to article 1834 of the civil code:
“When depositing a sum of money with a bank, the latter acquires ownership and is obliged to return it in the same monetary type, upon expiry of the agreed term or at the request of the depositor, with observance of the notice period established by the parties or from uses. Unless otherwise agreed, deposits and withdrawals are made at the headquarters of the bank where the relationship was established”
In summary, when you deposit your money into a current account, it becomes the property of the bank and you, the current account holder, are just a creditor.
So then the most important thing to consider is not so much the cost of the current account, but rather that the bank is able to honor its commitments.
- CAPITAL SOLIDITY:
is the key indicator for a rational choice especially after the entry into force, from 1 January 2016, of the legislation of the BAIL-IN. This European directive ( Bank Recovery and Resolution Directive ) provides that in the event of bank failure a rescue procedure is applied in which, in addition to the members of the institution, other actors also bear the losses according to this hierarchy:
- shareholders
- bondholders (first the subordinated bonds and then the senior ones)
- current account holders (with a balance exceeding 100 thousand euros)
If the first 2 points can be avoided because it is not mandatory to own shares and bonds of the bank where you have a current account, being a current account holder is common practice therefore it is necessary to know the state of health of your institution.
The most important indicator that expresses banking solidity is the CET 1 (Common Tier Equity 1). I don’t want to get technical and tell you what ratio it is calculated with, but what you need to know is that the European Central Bank (ECB) has established that this index must be at least 8%. The higher this value is, the more solid the bank is considered.
2. COSTS
Knowing exactly what costs you incur and for which services is essential. There are many types of costs, for simplicity we divide them into 2 categories:
- FIXED COSTS (they are paid regardless of the use of the account) and are the various fees:
- Bank account
- ATM
- credit card
- home banking
- Send account statement
- VARIABLE COSTS (depends on the number of operations – the more you use, the more you pay):
- transfers
- utilities (bills – recurring payments – etc…)
- ATM withdrawals
Once you know what kind of services you need and how often, you can get an idea of the costs you will incur. Alternatively, you can go and check the statement you receive at the beginning of each year in which the bank is obliged to show you the costs incurred in the previous year.
The Synthetic Cost Indicator (ISC) which you find on all current account information sheets, almost always on the front pages, provides you with immediate information on the cost of the current account.
According to the latest Bank of Italy estimatesa current account has an average annual cost of 80 – 120 euros for traditional banks and 25 – 60 euros for online banks.
Why is it important to know how to choose your bank well?
Choosing your bank should never be underestimated.
All decisions concerning money are decisions concerning the present but above all the future. This is why you should never choose your bank on the basis of the commercial offer of the moment.
Whether we like it or not we have to deal with money all our lives and banks are nothing more than financial institutions that provide simple financial services.
Make all the assessments you deem necessary for an informed choice, but remember that there is no perfect bank but the one that more than others best suits your needs and not the other way around.
PS there is no bank in the world capable of withstanding a bank run (bank run in which most customers withdraw all their savings at the same time).
If you are interested in these topics, every week I write articles and emails reserved for my clients which I have decided to extend to AostaSera readers as well. If you want to receive them, visit my dedicated page.
