With cryptocurrency and decentralization on the rise, banks and other financial institutions find themselves in an awkward position these days. This is especially true in the European Union, where many experts feel there will soon be another bank run. To counter this threat, some EU states have been contemplating measures that would prevent bank customers from withdrawing money from accounts. These temporary “freezing” measures may go into effect very soon.
New EU Directive Could Freeze Bank Account Withdrawals
Most people who have bank accounts think they still control the money stored in them. That is not the case, as the bank retains full custody of the money inside bank accounts. Customers need permission from the bank to move and withdraw their money from said accounts. Making a transfer to a different bank account requires authentication through the bank’s servers before the funds change hands.
The same goes for withdrawing money from one’s own bank account. In most countries, this can either be done using ATMs or by visiting a teller. In the case of ATMs, customers must insert their bank-issued card, type in their PIN code and then hope the machine will let them withdraw funds. The lack of control is concerning, being that these are customers’ own funds. Storing your money in a bank account means giving up control over it, which may come to bite European Union citizens in the rear very soon.
Reuters recently reported that a new proposal may soon allow EU banks to prevent customers from withdrawing money. Such a directive would set a very dangerous precedent. Various European Union states have been looking into such measures in an effort to prevent future bank runs. If a bank run were to occur, most banks would be unable to accommodate all withdrawal requests. Contrary to what most people think, local bank branches do not store millions of euros in their own vaults in case a bank run were to occur.
While the EU claims this measure is a way to help lenders that are on the brink of collapsing, this measure could be abused as well. If any bank is in trouble, people have the right to pull their funds whenever they want. A directive such as this one would prevent customers from doing so. It is not the responsibility of your average European citizen to successfully keep banks afloat using his or her own money. Financial institutions and governments seemingly think otherwise.
The proposal has apparently been under development since early 2017, so it is strange we only hear about it for the first time in July of 2017. Banco Popular, a well-known Spanish bank, suffered a bank run two months ago, eventually leading to its collapse. It is understandable that other European banks would want to prevent the same from happening to them. Dealing with struggling banks has always been a big problem for European countries. The previous regional economic collapse still lingers to this day, and this new directive will trigger another collapse if the plan ever gets approved.
Temporarily blocking customers from withdrawing funds from their bank accounts is a feasible option, according to the Estonian president. It is not entirely surprising that Germany supports this measure as well. The rest of the EU nations remain divided on this topic. Ideas such as this one will certainly trigger significant negative backlash. Thankfully, it remains to be seen whether or not the directive will be approved. This is one reason Bitcoin and other cryptocurrencies have been gaining in popularity: they let you be your own bank.