U.S. Banks Impose Withdrawal Limits

Several weeks ago a reader forwarded me a message, supposedly from banking giant Citigroup, entitled "Change to Inter-Institution Transfers User Agreement."

I thought that the message, which drastically reduces the amount of money Citigroup account-holders can electronically transfer to another institution, might be a hoax.  But I’ve now confirmed that it’s legit.

Purportedly as a "security measure," Citigroup has significantly reduced its daily and monthly limits on outgoing wire transfers.  The daily limit is now US$2,000 and the monthly limit is US$10,000.  (Click here to read the agreement.)

Citigroup is by far America’s largest bank, with assets exceeding US$2 trillion.  It’s also one of the most troubled.  You might recall that a few weeks ago, the Abu Dhabi Investment Authority provided Citigroup with US$7.5 billion to shore up its balance sheet in the wake of last summer’s sub-prime fiasco. 

Some experts believe that when the smoke clears, Citigroup will need at least another US$10 billion to bring its capital up to minimum levels.  That’s due to its decision to take US$49 billion worth of off-balance-sheet investments in structured investment vehicles back onto its own balance sheet.  Not to mention its promise to guarantee another US$58 in so-called "special investment vehicles" it manages.  And don’t forget the US$17.4 billion Citigroup already took in losses and asset write-offs in the last few months.

Even healthy banks have imposed withdrawal limits.  My own bank, for instance, recently slapped a US$10,000 daily limit for outgoing wire transfers, or US$50,000/month.  That’s a substantial improvement from Citibank’s limits, but still sobering when you consider that until 2007 (according to banking insider James Sinclair), no major U.S. bank limited outgoing electronic transfers.

If you’re a U.S. depositor in Citibank, and have a checking account there, you can write as large a check as you wish to move your money to a stronger institution.  But many foreign investors who have U.S. bank accounts don’t have access to paper checks.  If they want to transfer money out of Citibank, or any other bank that has imposed such limits, they must do so electronically. 

Or, they can close their accounts altogether—an option that I suspect will be resorted to much more frequently as 2008 progresses. 

Copyright © 2008 by Mark Nestmann