Is the Infinite Banking Concept at risk like Silicon Valley Bank?

Posted By: Olivia McGraw ICOR Blog & News,

To adequately evaluate if the Infinite Banking Concept (IBC) is at risk like Silicon Valley Bank (SVB), we first need to understand what happened with SVB, and how banks operate.

When we introduce clients to IBC, the first step is to understand banking. It is impossible for us to discuss banking without highlighting the greatest problem with banks- their risky endeavors with fractional reserve lending. Quite simply, fractional lending means that for every $1 deposited, banks only need to keep .03 cents, or 0% as of March 2020, ready for a withdrawal. This system “banks” on depositors not all wanting to access their deposits at the same time. Lending your deposits at a marked-up rate is how banks make money. Now let’s say that the bank specializes in lending risky start-ups. Then let’s say a rumor spreads about the lack of liquidity, thanks to a drop in the stock market and some other factors, depositors become concerned and begin withdrawing their deposits. The rumor spreads about the lack of liquidity then the situation snowballs into a classic run on the bank. Until a few weeks ago, we often had to refer clients to the movie It’s a Wonderful Life, to harken back to a time when runs on the bank were a regular event.

Unfortunately, most people live with the comfortable illusion that “this could never happen to me.” But what if it did? Well, if you have less than $250,000 on deposit, your deposits are FDIC insured. Great. But what if your company or fix-n-flip biz needs a regular cash flow buffer in excess of this threshold? Now you have the SVB situation. However, this could actually happen to any bank at any time. The bigger question is how fast could you transfer your deposits elsewhere and are you confident you can beat your neighbor to the bank?

Without starting down the entire conversation of what is IBC and how does it work, let’s simply examine the security element of IBC. IBC is a vehicle for savings and investments that utilizes a niche form of whole life insurance. That last sentence has plenty of buzz words that a google search will immediately claim is a bad idea. However, if done properly, it is a powerful vehicle for warehousing your wealth. Why? Because the insurance carriers we work with must keep liquid $1 in assets for every $1 in liabilities. What is their liability? Not that you want access to your “savings” or cash… rather that you die before anyone expects and they must now pay the death benefit. By the nature of insurance, this death benefit must be larger than the cash you have stored with them. So if you’re simply wanted your liquid cash, that is of far less concern than you prematurely expiring. That liquid cash can also go to any account with your name, or business name. If your current bank is in distress, find one that isn’t, open an account, and make a transfer. (As side note, when banks were in peril during the great depression, it was not the government who came to their rescue. It was the insurance companies.)

If you’re concerned about where our nation is headed economically, we need to have a conversation about IBC. The next time you need a loan for a property, you could borrow from yourself at a significantly less rate than your local bank or a hard money lender. Schedule a consultation today to explore your options.

Olivia McGraw: