Kerby Anderson

When you make an investment, it is important to know if there is any counterparty risk. Any business involves a cooperation of many entities and individuals. How likely is it that one of them may default on their financial obligations?

Here’s a scary question: what if the counterparty is your bank or the government? That may be less likely here in the US, but is becoming a reality ever since the 2013 banking crisis in Cyprus created the concept of the bail-in.

A recent article in Fortune describes that as a form of financial relief for banks that are in danger of collapsing or going bankrupt. “The relief comes from canceling some or all of the bank’s debt by reducing the value of bank shares, bonds, and uninsured deposits.” In case you are wondering, this has been made possible in Europe under a new framework and in the US under 2010 the Dodd-Frank Wall Street Reform and Consumer Protection Act.

But even if the bank isn’t failing, the government still has the power to freeze a bank account or any other financial account. The best example comes from Canada. Last February, the Canadian government began freezing the accounts and canceling credit cards of anyone involved in the trucker protests.

One commentator explained what it takes to freeze an asset. Stocks-press a button. Bonds-press a button. Mutual funds-press a button. Cash in the bank-press a button. Of course, that is just a short list.

Decades ago, someone said that you only think you own your house, until you don’t pay your taxes. We could add that you only think you own your stocks, bonds, or cash until the government says you don’t. Citizens in other countries are learning this. Let’s hope we don’t ever see that here in America.