A clarification on two items in our post about Citibank (NYSE: C) yesterday. A few readers wrote in asking for sources. The ATM story is all over the place. The Wall Street Journal carried it, writing that, “In the days leading up to Christmas, just when cash for gifts, tips and entertainment is essential, Citigroup cut the daily amount of money some customers could withdraw from its automated teller machines to about $500.”
You’ll also find it in the New York Daily News. In an articled dated January third, Kerry Burke and Larry Mcshane report that, “A jump in ATM fraud led Citibank to slash the maximum amount of cash available to customers from their accounts – a security move greeted warily Wednesday by its patrons.” Warily indeed. But what about the other story, a restriction on wire transfers?
We’re not trying to be Mrs. O’Leary’s cow here, and spark an unfounded panic about Citibank. Urban legend has it that the great Chicago fire of 1871 was started when a dairy cow in the barn of Kate O’Leary knocked over a lantern and set fire to the coal and wood shavings stored in the shed. Chicago burned for two days, but was eventually rebuilt into one of the great early modern cities of the Midwest. All because a cow kicked over a lantern.
So just what’s going on? From following up yesterday, we learned that Citibank is limiting free outgoing wire transfers to $2k per day. If you care to pay a small fee, however, you can apparently still transfer all you want. For the original document Citi sent to its customers, we’ve posted a copy sent to us by a friend.
Just to be clear, our suggestion that Citibank was effectively restricting the ability of people to take money out of the bank is thus clarified. You can still take your money out of the bank, if you’re willing to pay a small fee. The bank isn’t preventing customers from transferring money.
One of our friends in Europe read the item yesterday. He got a notice from Citibank explaining the wire transfer rules. He read our comment about low-level capital controls and wrote in:
- ‘As a Citibank customer, I can tell you that those were my thoughts exactly, the moment we got the notice. And by the way, they weren’t all that vocal about giving that notice themselves. It was barely a whisper of an announcement.
‘We noticed it, though, because we regularly make large wire transfers from Citibank in the US to our bank account — about $11K at a clip, every three months. I called the bank a bit panicked, thinking we’d need to make a heck of a lot of wire transfers to make up the difference.’
‘But it turns out the restriction is on a different kind of fund transfer. Wire transfers — with a fee — you’re still permitted, up to a daily limit of something like $50K.’
‘Nonetheless, it spooked us enough that we finally went ahead and started doing what we’ve said we should do for a long time… move everything to another bank. We’re in the process of moving the rest of our money out of Citibank to another bank (with, supposedly, less subprime exposure).’
There you have it. Citibank has not imposed capital controls. Its capital is not so constrained that is preventing customer withdrawals. But as one reader wrote in, the whole situation, “Is a very good example of why gold should be held even in times of deflation.” Gold is not someone else’s promise to pay.
The Daily Reckoning Australia