A little while ago a photo of this ATM receipt caused a bit of a stir because
it had a balance slightly shy of 100 million dollars, in a regular old bank checking account.
The thought of opening up a your phone bank app to find 9 figures looking back at you
is obviously very compelling especially in a day and age where some 40% of
American would have to go into debt to cover an unexpected $400 expense.
This receipt was later revealed to belong to a former hedge fund manager
who was keeping the cash in a bank account in anticipation of an upcoming investment,
but this begs the question. How much money can you keep in a single bank account?
The answer most banks will give you is that there is no limit,
and for the most part this is effectively true. What’s more, is that of course banks will tell you
this because they really need depositors’ money to use as collateral for borrowing more money which
they will then invest or lend out to the general public which is how they make their profits.
However, the first “limit” per say that you will run into is what will be
guaranteed by the government. Banks are private companies that can go bankrupt
taking your cash down with them. This is a very scary prospect to a lot of people and businesses
who may avoid banks for this reason, or rush to withdraw money from a failing institution
accelerating their collapse by causing a run on the bank.
For this reason most governments around the world insure bank deposits up to a certain value, in the
USA for example that maximum is $250,000. So if a bank collapses and you had a million dollars
sitting in a bank account with them, well sorry you just lost three-quarters of all your money.
In fact there are actually companies in place that will take wealthy peoples money and spread
it out over multiple institutions to ensure that each individual account remains below $250,000 and
therefore remains totally insured. Not a bad problem to have. But this is still small fry.
You may have seen the news that apple listed over 200 billion dollars in cash on it’s balance
sheet in the first quarter of 2020. The thing with this though is that was not really cash.
Most of this money is held in short term government bonds called treasury bills,
rather than sitting in a HSBC chequing account.
This is why if you ever look closely at the balance sheet’s for large companies they will list
cash and cash equivalents. These short term government bonds are basically as good as cash
because they are so easy to sell and so stable in pricing, while also actually being much more
secure than a bank deposit since there is no private institution middlemaning the arrangement
between the government issuing the bonds and the company or individual that owns them.
In the world of super-high finance holding onto a treasury bill is like having cash in your pocket,
fine for day-to-day activities but the real money gets held in bank accounts
or in this case treasury accounts.
Federal reserve accounts are the accounts that regular banks will have with the federal reserve
which are pretty much just bank accounts for banks. At the moment there are close
on 4 trillion dollars in these accounts with some institutions like JP Morgan Chase easily holding
hundred of billions of dollars in reserves themselves, on behalf of all their customers.
However, these special bank accounts are only allowed to be opened by three
different groups. The Treasury department of the united states,
Registered American Banks, and foreign governments. Private companies and Individuals
are not allowed to open accounts directly with the federal reserve no matter how rich they are.
So while these accounts might have really big numbers in them,
they kind of blur the line between a bank account and an entirely unique asset class.
So what about the largest account ever held with a normal American bank, well if you have
ever watched our video on the ranks of global billionaires you will know that the richest among
us only ever keep a tiny amount of actual money on hand preferring instead to use lines of credit
to do most of their shopping using private banks almost like the worlds biggest credit card. So
the title probably goes to a billionaire who was a little bit less than legitimate, bernie madoff.
Madoff famously ran the worlds largest Ponzi scheme for close on 2 decades,
which involved him depositing investors money straight into a regular old bank
account and then paying out existing investors from the same pot of cash.
Treasury bills would have been too cumbersome and also given the scheme away as
authorities would have been able to see massive purchases of t bill’s
rather than equities he was claiming to invest in.
You see he never actually made any investments and just let the account
balloon in size as more and more investors bought into his scheme.
At it’s height, his chase business account had over 5.5 billion dollars sitting in it.
Unfortunately, the scheme collapsed in the wake of the 2008 subprime mortgage crisis as his
supposed investors desperately tried to withdraw their funds to sure up their own businesses.
Now a few people have pointed out that so much money sitting in a regular bank account attached
to a man that was supposedly running an investment firm should have raised alarm bells at chase bank.
Now the reason it didn’t was probably a combination of incompetence and greed. The
classic bankers cocktail. Over the 20 years or so this massive account was open the bank was
able to lend and invest money against it making them an estimated 500 million dollars in profit.
Which as far as incentives go to look the other way, is a pretty good one.
There are calls to hold chase partially responsible for facilitating this fraud
but what do you think? Should banks just be there to accommodate the needs of their
clients and grant them total privacy in their dealings beyond general regulations,
or should banks actively be monitoring their customers for evidence of anything suspicious?
Now the question still remains unanswered what’s the most money you can pile into a bank account,
and to be honest I didn’t really know, so I called my friend who maintains banking databases.
Money in your account is stored as a 64 bit integer, that is scaled down to a 100th of a cent.
So 2.85 cents would actually be expressed as 28500. This means the bank can keep
very precise tabs on exaaccccttlllyyy how much money everybody has. But it does have a limit.
64bit just means the computers store numbers as a 64 digit long sting of 1 and zero’s.
If you convert binary to base ten which is you know normal people numbers then 64 1’s creates
(18,446,744,073,709,551,615) 18.4 quintillion, but 1 of those ones and zero’s has to be assigned to
tell the computer if this is a negative or a positive, loosing one zero brings the maximum
down to a measly (9,223,372,036,854,775,807) 9.2 quintillion. But remember this number is
down to the 100th of a cent which means we need to move the decimal place over 4 spots.
This gives us a maximum of 922 Trillion ,337 Billion,203 Million ,685
thousand,477 dollars and fifty-eight cents that can be kept in a regular bank account
or about 500 times more money than exists in the USA, at which point
you know what I am sure the bank will throw in a complimentary second account for you.
This limit might seem totally arbitrary in the USA, but it was actually exceeded during
the period of extreme hyperinflation in zimbabwe, where electronic banking records had to be amended
by hand from tellers who would write times 1 million next to whatever a person had on deposit.
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Thanks guys, bye.