Is it illegal to keep withdrawing money from a bank account deposit it at a different bank, transfer it back over and withdrawing it again to cause a bank run to short a stock?
I just found out a local shitty bank is a publicly traded stock with a 2 billion dollar market cap. And I’d like to short it.
My plan is to withdraw cash like 100$ from them and deposit it with a different bank then transfer it back to them and withdraw the same 100 $ until they run out of physical cash. I would then go around and let people know that when I tired withdrawing money from them that there was no cash to withdraw.
This in turn should cause a bank run and I’m assuming a decent amount of people would close their accounts leading for the stock price to fall.
Puts are extremely cheap and I would love for this bank to go out of business or lose public trust.
Has anybody tried this method before? Are there any REAL downsides?
Honestly, as someone who knows too much about the community bank space, this is a brilliant plan. Only downside I see is deciding how you're going to spend all those sweet profits.
Lol feels a bit like market manipulation. Hope you have a lot of patience when withdrawing $100 at a time
Could they not just get more cash on-hand within the time it takes for you to withdraw it all? And would they not get suspicious? Interesting idea though.
Ya, I'm not an expert on this subject, but I'm going to go out on a limb here and say that if anyone ever caught wind of this and it succeeded the US attorney would be sitting across from you in a courtroom very soon.
What you're talking about is attempting to not only manipulate a stock, but to manipulate a stock in order to cause a bank to fail, go out of business and the FDIC having to take it over.
I'm not a lawyer, but I imagine the case could be made that you're 1) manipulating the market 2) defrauding the bank 3) defrauding the United States (through the FDIC) 4) transferring money in the furtherance of a criminal enterprise (bank fraud/wire fraud).
That said, I think everything that your proposing doing should be legal. So not exactly an authority on the subject.
Just to follow up, I believe the above is correct. Maybe not exactly legal advice to the full letter, but if this every occurred they would find a way to get you legally.
Breaks down into "you can't fight city hall". Mainly, there are a lot of ways to make money in some "scheme" like this that might not be totally illegal, but the government won't let you get away with it because it would lead to a lot of other people trying something similar. On top of that, it would probably become a spectacle, and something the government would parade as going against "Wall Street".
Couple case in points: I re-watched the Big Short with the fiance the other day, and she asked why basically no one went to jail. Answer is, where do you start and how do you determine who goes. Another example is, some have made the argument about Enron that technically the company didn't do anything illegal (i.e. defrauding investors) because they had everything in public print of what they were doing, it was just hyper-legislative and most people didn't read/didn't understand it (if they read it). So technically, Enron may not have been doing anything illegal, but the government couldn't let that pass because business would copy that if not held accountable.
I'll chime in here since the other thread referencing this post got traction.
You are correct - everything the OP is proposing is legal (with the key caveat that he's talking about doing this himself - not a concerted and coordinated effort). For that very reason, it is not operationally possible. Let's break it down:
1. Banks have extraordinarily thorough systems to manage cash on-hand at a branch. The supply of cash at bank branches is (using the economics definition) perfectly elastic. An analogue would be paper towels at Wal-Mart. If you were to go into Wal-Mart and buy all the paper towels you could realistically cart and carry to your car, go home, unload them, and go back to the store... the shelves would be re-stocked. No matter how many trips you make to Wal-Mart, there will be paper towels and the price of them will be the same. Lots of functions going on in the background will make sure they get supplies delivered and you (as an individual consumer) do not have enough market power to disrupt this. Same thing with the bank - they aren't going to run out of cash.
2. You may be asking "well what if I started withdrawing large amounts of cash? Amounts large enough to defeat the predictive ability of those fancy systems?" Yeah, no. Guess what? There is a limit to the amount of physical cash that you can withdrawal on a given day and its $10,000. Any more than that and you have to fill out a little form called a Currency Transaction Report (CTR) explaining to the bank and the government what you need the money for and where it came from. Same thing if you try to deposit more than $10,000. Oh, and breaking up withdrawals and deposits into multiple batches of $7,000? Yeah, don't do that. If the bank suspects foul play or is even unconvinced that your explanation is legitimate; they can refuse you. AND THE GOVERNMENT WANTS THEM TO DO THAT. Now, they'll be happy to transfer your money digitally wherever you want it to go. But giving you cash? Pass.
Oh, and your scheme would be interrupted because - if they thought you were suspicious - they'd probably close your account and hand your money and kindly ask you to leave and not come back. And the government wants them to do that, too. Oh, and that other bank you are using to send money back and forth to? Yeah, next time you go in there... they are going to hand you all your money back, too. And no other bank in town is likely to accept your application because you've been flagged. Unless you work in the business - you cannot understand the extent to which banks take BSA/AML and KYC issues seriously. Unless you are a customer with a lot of assets and paperwork to back up the legitimacy of your business - you are literally not worth the time and the bank won't even bother trying to figure it out.
3. So you can't defeat their systems for predicting the cash needs of a particular branch (or branches) and you can't move enough physical cash to catch their system by surprise; but let's pretend you were dedicated and wanted to go from branch to branch to branch and withdraw $9,999 in cash and deposit it at multiple different banks to defeat the CTR requirements and then somehow transferred all that money back to the original bank overnight and repeated the process. Still wouldn't work. Why? Because while cash deposits are posted immediately; ACH transfers are dependent on the policies of each bank using the system. And their policies are set up to benefit them; not you. A bank can lower its cost of funds by posting withdrawals to your account (regardless of method) immediately but delaying posting deposits by a day or two (unless its a wire). That difference in timing is float they can use to manage the house money and reduce borrowing costs which is how they keep their cost of funds low. It can also be a sneaky way to screw poor people over because credits hit immediately while debits may not post right away and that could incur NSF fees because of the timing. It used to be much more prevalent than it is now and it was NOT politically popular. Regardless; it is still common for ACH items to not post overnight for a variety of factors. So now you've got cash deposited at 20 different banks on a Monday and transfers sent back to the original bank on Monday afternoon that won't be available for you to withdraw in cash again until Wednesday and guess what - that's enough time for the bank's systems to figure out they need more cash and have the courier bring that out. They have service level agreements with cash couriers that can get same day service. So no, you can't operationally beat them.
4. Bank runs only work when people literally can't access their money. That doesn't have to be in the form of physical cash. You think SIVB this spring was a cash run? It was all digital withdrawals. The bank failed because they didn't have enough 0's and 1's on their computers to match up to the 0's and 1's being sent to other computers. As long as people can get confirmations of their 0's and 1's moving through the internet tubes - runs will peter out fast.
If you ever go for it, I'll be looking forward to Levine's coverage of this particular bank failure, and boy will I enjoy my downtime criminal complaint reading.
"What happens when you:
1. Open a deposit account at bank A.
2. You withdraw cash from bank A.
3. You deposit it at bank B.
4. You transfer it to bank A.
5. Repeat 2-4 endlessly (or not so endlessly).
6. But, most importantly, short the stock at point 1.
Well, a janitor from Kentucky, Haimchinkel Jamal Anaynikal Mohamed Al-Abib, just got prosecuted by the U.S. Attorney for a collapsing a regional bank. Let's dive in the prosecution argument"
This can't be a real question. If it is, cue all the threads about how interns are just the absolute worst.
Sorry CVB Financial rejected you, best of luck next year on securing a commercial banking internship :(
18 U.S. Code § 1344 - Bank fraud
Whoever knowingly executes, or attempts to execute, a scheme or artifice—
(1) to defraud a financial institution; or
(2) to obtain any of the moneys, funds, credits, assets, securities, or other property owned by, or under the custody or control of, a financial institution, by means of false or fraudulent pretenses, representations, or promises;
shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both.
___
fraud - Fraud involves the false representation of facts, whether by intentionally withholding important information or providing false statements to another party for the specific purpose of gaining something that may not have been provided without the deception.
__
wouldn't opening a deposit acc. solely to make a bank illiquid be already considered "deception"? I dunno, man, maybe get in contact with Wachtell and clarify it.
This thread is precious - imagine thinking the banking system is predicated on actual cash deposits in the vault, which someone could deplete by turning themselves into a circular reference one $100 withdrawal at a time.
Most money is just pixels created out of thin air guys. Go revisit your studies (did you ever have any?) on fractional reserve banking, how the FOMC works, and recognize that what OP is proposing is idiotic.
Isn't that OP's point though? Transferring in digital money, then withdrawing physical cash?
Iusto nulla explicabo numquam quisquam est. Aut voluptas ullam tenetur perferendis porro. Voluptatem nemo officia aut necessitatibus et laudantium. Sequi totam iure officia est hic non minima.
Et delectus illo et fuga magnam error delectus. Nihil tempore error molestiae dicta odit est omnis.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...