Is Citibank about to go under?

The folks at Citibank appear determined to shoot themselves - or, rather, their bank - in both feet simultaneously.

First, last year, they tried to impose a radical increase in credit card interest rates. They said at the time that if one didn't want to accept it, one's account would be closed, and one would have an opportunity to pay off any outstanding balance at the pre-existing interest rate. They don't seem to have followed through on this threat: at least, when I refused to accept the interest rate hike, they allowed me to retain my credit card at the previous rate of interest. I don't know whether they did the same for others. Anyway, it left a nasty taste in the mouth.

Now comes a report that Citibank is reserving the right to refuse to disburse funds from one's checking account for up to seven days. As Karl Denninger points out:

Most checking accounts - that is, non-interest-bearing accounts against which one can write checks - are better known as "DDA" accounts in banking parlance. If you look back through your counter receipts for deposits into one (assuming you keep them) you will probably see the letters "DDA" on the detail line.

What is "DDA"? It stands for DEMAND DEPOSIT ACCOUNT.

What is a "Demand" account?

It is an account which the holder reserves the right to, and the bank agrees to comply with, demand any and all good collected funds in the account at any time up to the entire balance.

. . .

What this "quiet" little change means is that Citibank has changed the character of all of its checking accounts. They no longer offer a "DDA" account, whether they did before or not.

The importance of this cannot be overstated. Without a "DDA" account the bank could at its sole discretion dishonor any check at any time, thereby hitting you with an overdraft fee as you didn't give them the requisite seven days notice. It could also prevent you from removing your funds to a more appropriate (for you) institution for that seven days, entirely at their whim and sole discretion.

ALL time deposits (savings accounts included, which have always contained this requirement) effectively are a loan of funds from you to the bank. That is, you don't "deposit" money there, you loan it to the bank which then charges other people to borrow it. This relationship isn't taught in our Goebbels Government Education System (not even in college!) but it is nonetheless true.

However, essentially all banks have maintained one type of account - a Demand Deposit Account - which in fact operates differently. A DDA account is an appointment of the bank as a custodian of your funds, not as a borrower of your funds. Said account never pays interest (per Federal Reserve rules - and common sense) yet it allows immediate, unrestricted access to your funds because you are not lending them to the bank, you are appointing them as a custodian of them.

DDA accounts are essential for the ordinary flow of commerce. There must be an option available to consumers and businesses alike in which they can place custody of funds they may need, up to the entire balance of that account, at any point in time without prior notice. Without this ability you are literally at the mercy of the financial institution in question, which can cause you to incur hideous "bounced check" and other similar charges as well as potentially exposing you to criminal liability for "uttering" (writing bad checks.)

This is NOT a trivial change in terms. I would never do business with an institution for my business or personal checking accounts that did not offer a true demand account, and you should not either. This sort of change is outrageously destructive to your rights as the funds you have on deposit in a checking account are not intended to be loaned to the bank to do with as they wish, but rather to be held for your immediate (if necessary or desired) use.

If you have a lick of sense you cannot hold such an account after this change. If you do, and get burned as a consequence at some point in the future, do not cry that you were not warned - you were, and it's your own fault that you failed to heed that warning.

GET YOUR MONEY OUT OF CITIBANK AND INTO AN INSTITUTION SUCH [AS] A CREDIT UNION NOW. THERE IS NO EXCUSE FOR THIS SORT OF ABUSIVE CHANGE IN TERMS THAT COULD EASILY EXPOSE YOU TO FINANCIAL OR EVEN CRIMINAL LIABILITY.

There's more at the link. Bold print is Mr. Denninger's emphasis.

Dear reader, I don't know what this says to you, but I know what message I'm hearing. I'm hearing that Citibank is so saddled with liabilities, so short of cash, that it can't afford to allow its customers to withdraw their money on demand. Instead, it wants to be able to delay such withdrawals so that it can arrange to borrow the money elsewhere in time to pay its customers.

Can you spell 'incipient bankruptcy'? I thought you could . . .

I second Mr. Denninger's advice. If you're a Citibank account-holder, I most strongly suggest that you withdraw your funds at once, and deposit them with a safer, more reliable institution.

Peter