"As more and more customers withdraw their funds from banks, capital controls will surely become more severe for the unfortunate few who did not have the foresight to abandon their sinking banks."
In 2008, the world realized that most multi-national banks were actually insolvent. Many of these banks were, and still are, highly leveraged to extremely risky assets, and had/have shockingly low reserve ratios. If the stock market were to crash today, almost every bank in the world would be insolvent. And the guarantor of the bank deposits—world governments— would be in worse shape than the banks.
To make matters worse, the European Union recently shocked the world by sanctioning a rescue plan in the small Mediterranean country of Cyprus which would have stolen insured bank deposits.
Essentially, the European Union acknowledged that bank insurance is worthless and bank deposits can be stolen at any time to satisfy the bad debts of a nation. Needless to say, worldwide trust in banks has been eroded over the last decade.
As a result, banking alternatives such as the crypto currency Bitcoin are starting to take over bank functions. Bitcoin can process financial transactions faster, more securely, and cheaper than the traditional banks. With the interest rates at artificially low rates (below the real rate of inflation), customers have absolutely no reason to keep funds in savings accounts any longer, and a reduced reason to use banks at all.
These factors have driven bank customers to withdraw large amounts of cash. In order to prevent the depletion of already dangerously low reserves, banks have begun to implement illegal capital controls which inhibit customers from withdrawing their money. HSBC, the largest bank in the world, has begun denying requests for customers to withdraw the funds in their account unless they prove that they really need the money.
Even in cases when customers have proven that they have a legitimate reason for the withdrawal, HSBC has denied the request. In one such case, HSBC customer Stephen Cotten went to his local branch to withdraw £7,000 to repay a loan from his mother. The branch declined his request. Mr. Cotten then asked for £5,000, which was also denied.
The bank ended up negotiating a £3,000 withdrawal, and sent Mr. Cotten on his way. As more and more customers withdraw their funds from banks, capital controls will surely become more severe for the unfortunate few who did not have the foresight to abandon their sinking banks.