What happens if a bank no longer use an intermediary bank?
If your counterparty sent money to a correspondent account at another bank, then it is completely up to the other bank what to do with the money. If the wire transfer completed, then the account is not closed. If I were your business partner, I would immediately contact the bank to which the transfer was made and explain the situation and hopefully they will transfer the money back. Whenever a wire transfer is made, the recipients name, address, and account number are included. If that name, address and account do not belong to you, then you have a problem because you have no legal right to the money in a court of law. For this reason, you should be avoid any situation where you are wiring money to anyone except the intended recipient.
No Drawbacks. One day, the bank might decide to kick you out. Typically, they send you a letter and warn that they will close it if it stays unused, and then you have to decide if you move some money into it or have it cancelled. If the checking account is in a FDIC insured bank or a NCUA insured Credit Union then you don't have to worry about what happens if the bank goes out of business. In the past the government has made sure that any disruption was minimal. The fraud issue can cause a bigger problem. If they get a hold of your debit card, they can drain your account. Yes the bank gives you fraud protection so that the most you can lose is $50 or $500; many even make your liability $0 if you report it in a timely manor. But there generally is a delay in getting the money put back in your account. One way to minimize the problem is to open a savings account,it also has the FDIC and NCUA coverage . The account may even earn a little interest. If you don't allow the bank to automatically provide an overdraft transfer from savings to checking account, then the most they can temporarily steal is your checking account balance. Getting a credit card can provide additional protection. It also limits your total losses if there is fraud. The bill is only paid once a month so if they steal the card or the number, they won't be able to drain the money in the bank account.  The credit card, if used wisely can also start to build a positive credit file so that in a few years you can get a loan for a car or a place to live. Of course if they steal your entire wallet with both the credit and the debit card... Not sure if I follow your question completely. Re: What if some fraud takes place that's too big even for it to fund?   SIPC does not fund anything. What it does is takes over the troubled brokerage firm, books / assets and returns the money faster. Refer to SIPC - What SIPC Covers... What it Does Not and more specifically SIPC - Why We Are Not the FDIC. SIPC is free for ordinary investors. To get the same from elsewhere one has to pay the premium. Edit: The event we are saying is a large brokrage firm, takes all of the Margin Money from Customer Accounts and loses it and also sell off all the stocks actually shown as being held in customer account ... that would be to big. While its not clear as to what exactly will happens, my guess is that the limits per customers will go down as initial payments. Subsequent payments will only be done after recover of funds from the bankrupt firm. What normally happens when a brokrage firm goes down is some of the money from customers account is diverted ... stocks are typically safe and not diverted. Hence the way SIPC works is that it will give the money back to customer faster to individuals. In absence of SIPC individual investors would have had to fight for themselves. Most national banks are required by the regulations of their host countries to hold significant reserves in the form of government debt. A default would likely wipe out their capital and your common stock would become worthless. The common stock only has positive value today because of the option value based on the possibility the host country will evade a default. "Under no circunstances will the bank keep the money for itself. Keeping the money is considered Unjust Enrichment: A general equitable principle that no person should be allowed to profit at another's expense without making restitution for the reasonable value of any property, services, or other benefits that have been unfairly received and retained. The banks will attempt to, in order: Wait for some time: Generally, a time frame of three to five years with no customer-initiated activity sends an account into dormancy. The amount of time that must lapse depends on the [US] state in which the bank account was opened. Attempt to contact the account holder: (...) the bank must try to notify the account holder. If the customer does not respond within a certain amount of time, the balance on the account will be turned over to the state. Turn over the money to the government: In a process what is called “escheating” an account, banks are required to turn over funds from the inactive account to the state treasury. Once the account is sent to the state, the funds are held as unclaimed property. At this point the account no longer exists so far the bank is concerned.  To reclaim your money, you will have to contact your state for the instructions on how to get your money back. You’ll need to complete and submit a claim form along with the necessary identification. If you happen to have unclaimed property held by the state, you can begin the retrieval process by visiting www.unclaimed.org. For a foreigner, it is not unreasonable that the bank would attempt to contact the diplomatic body of the country of origin in step 2, but that may be subject to bank policy. There is some paperwork the bank needs to do to ""escheat"" the account and properly transfer the money to the state." "This will happen automatically when you open an interest-bearing account with a bank.   You didn't think that banks just kept all that cash in a vault somewhere, did you?  That's not the way modern banking works.   Today (and for a long, long time) banks will keep only a small fraction of their deposits on hand (called the ""reserve"") to fund daily withdrawals and other operations.  The rest they routinely lend out to other customers, which is how they pay for their operations (someone has to pay all those tellers, branch managers, loan officers) and pay interest on your deposits, as well as a profit for their owners (it's not a charity service).  The fees charged for loan origination, as well as the difference between the loan interest rate and the deposit rate, make up the profit.   Banks rarely hold their own loans.  Instead, they will sell the loans in portfolios to investors, sometimes retaining servicing rights (they continue to collect the payments and pass them on) and sometimes not (the payments are now due to someone else).  This allows them to make more loans.   Banks may sometimes not have enough capital on hand.  In this case, they can make inter-bank loans to meet their short-term needs.  In some cases, they'll take those loans from a government central bank.  In the US, this is ""The Fed"", or the Federal Reserve Bank.   In the US, back around the late 1920's, and again in the 1980's some banks experienced a ""run"", or a situation where people lost confidence in the bank and wanted to withdraw their money.  This caused the bank to have insufficient funds to support the withdrawals, so not everyone got their money.  People panicked, and others wanted to take their money out, which caused the situation to snowball.  This is how many banks failed.  (In the '80s, it was savings-and-loans that failed - still a kind of ""bank"".)  Today, we have the FDIC (Federal Deposit Insurance Corporation) to protect depositors.  In the crashes in the early 2000's, many banks closed up one night and opened the next in a conservatorship, and then were literally doing business as a new bank without depositors (necessarily) even knowing.  This protected the consumers.  The bank (as a company) and its owners were not protected." As far as I know, with ADRs you're essentially trading by proxy -- a depository bank is holding the actual stock certificate, and must provide you with the actual stock on demand. The one thing that is different is that in the event that the ADR is terminated (which sometimes happens with mergers), you have a limited period of time to sell the shares -- otherwise, you get the actual foreign stock that you may or may not be able to trade without transferring to a different broker. Capital requirements for a de novo bank, as opposed to an established one, are a real bitch.  Basically the government wont let you loan nearly as much of your money out.  You can't skirt this by buying an existing bank.  Regulators don't want upstarts making stupid loans and thus encouraging lower credit criteria systemwide.  Also Incumbents don't want more competition and they have lobbyists so I don't see this changing soon. "There will not be enough money to fill the holes that are caused by banks' easy money policies combined with the trillions in derivative ""hedges"" that the banks have off-balance sheet.   The idea is that the chain reaction collapse of the European banking system can be avoided by plugging the holes in the dam in Spain, Italy, Greece, Portugal and Ireland. But it is a crazy idea. Next comes France, and then what? At some point there is not enough money to plug the holes and the entire facade collapses anyways.  Adults would dismantle the Eurozone now and let each country see to itself. Let the banks collapse. Capital (in the form of dollars, gold, etc) will reappear and means will evolve rapidly to connect capital with people who need loans for business.   Consumer loans are going the way of the dodo bird." Take your business elsewhere, where the products and services are priced at a level you agree to pay.  This does two things.  First, you end a bad business relationship.  Why bad?  Because you're not happy with the deal.  Second, it sends an unambiguous signal to the losing bank that you were unhappy with their service.  If they offer an exit survey, complete it, and be sure to tell them what made you unhappy with their service. In a free market economy, if consumers all take their business where the terms are favorable, supply and demand would force the banks to compete for consumers' business. 3) Isn't strictly true, as off market swaps do trade quite regularly. For example, if the company has a bad credit rating, an off market swap is often executed to cover the credit costs (and essentially the cost of the bank's capital Under BASEL III.) Hence a bank shouldn't trade at mid. "MD-Tech answered: The answer is in your question: derivatives are contracts so are enforced in the same way as any other contract.  If the counterparty refuses to pay immediately they will, in the first instance be billed by any intermediary (Prime Broker etc.) that facilitated the contract. If they still refuse to pay the contract may stipulate that a broker can ""net off"" any outstanding payments against it or pay out using deposited cash or posted margins. The contract will usually include the broker as an interested party and so they can, but don't need to, report a default (such that this is) to credit agencies (in some jurisdictions they are required to by law). Any parties to the trade and the courts may use a debt collection agency to collect payments or seize assets to cover payment. If there is no broker or the counterparty still has not paid the bill then the parties involved (the party to the trade and any intermediaries) can sue for breach of contract. If they win (which would be expected) the counterparty will be made to pay by the legal system including, but not limited to, seizure of assets, enforced bankruptcy, and prison terms for any contempts of court rulings. All of this holds for governments who refuse to pay derivatives losses (as Argentina did in the early 20th century) but in that case it may escalate as far as war. It has never done so for derivatives contracts as far as I know but other breaches of contract between countries have resulted in armed conflict. As well as the ""hard"" results of failing to pay there are soft implications including a guaranteed fall in credit ratings that will result in parties refusing to do business with the counterparty and a separate loss of reputation that will reduce business even further. Potential employees and funders will be unwilling to become involved with such a party and suppliers will be unwilling to supply on credit. The end result in almost every way would be bankruptcy and prison sentences for the party or their senior employees. Most jurisdictions allow for board members at companies in material breach of contract to be banned from running any company for a set period as well. edit: netting off cash flows netting off is a process whereby all of a party's cash flows, positive and negative, are used to pay each other off so that only the net change is reflected in account balances, for example: company 1 cash flows netting off the total outgoings are 3M + 500k = 3.5M and total incomings are 1.2M + 1.1M + 1.2M = 3.5M so the incoming cash flows can be used to pay the outgoing cash flows leaving a net payment into company1's account of 0." a bank doesn't lend you money if it hasn't made sure that you can repay your debt in full (plus interests). That's not entirely correct. The bank issues a lot of loans and expects almost all people will pay their debts. The few people who go bankrupt and cannot pay are (more than) compensated for by the people who do pay their debts. The same holds for brokers, e.g. here is an example of the rates they calculate when you trade on margin, effectively borrowing money from them. I think what ended up happening with this is the canadian banks issued some high risk debt that is in line with the bail-in requirements. So the interest payments are more, but they could lose it all in a bail-in situation.  There was actually some debate about the sale of the debt not being fairly handled, but from the sounds of it the notes sold pretty quickly. So there doesn't seem to be much risk to depositors and investors don't seem to be worried about the additional risk. Also at the time of the banks becoming compliant with the Basel regulation I think most of them jacked their service fees to help with raising the additional capital requirements.  http://business.financialpost.com/2014/07/21/rbc-responds-to-complaints-about-issue-of-nvcc-subordinated-debt/ "Your question points out how most fractional reserve banks are only a couple of defaults away from insolvency. The problem arises because of the terms around the depositors' money.  When a customer deposits money into a bank they are loaning their money to the bank (and the bank takes ownership of the money).  Deposit and savings account are considered ""on-demand"" accounts where the customer is told they can retrieve their money at any time.  This is a strange type of loan, is it not?  No other loan works this way.  There are always terms around loans - how often the borrower will make payments, when will the borrower pay back the loan, what is the total time frame of the loan, etc..  The bank runs into problems because the time frame on the money they borrowed (i.e. deposits) does not match the time frame on the money they are lending."