Why Banks Refrain from Distributing Large Amounts of Cash

Today, banks typically don’t distribute large amounts of cash to customers. Instead, they prefer to provide loans with interest fees, ensuring that the borrowers have a stable income or funding source to repay the debt. This article explores the primary reasons why banks opt to avoid distributing large quantities of cash and why it is necessary for financial security and compliance.

Inside the Mind of a Retired Banker

As a former banker, I must emphasize that while lending large sums can be advantageous for performance records, there are several factors to consider before doing so:

Loan Reciprocity: We assess whether the borrower can repay the loan or mortgage. Security: Ensuring the borrower has adequate collateral or other forms of security. Policy Guidelines: Adhering to the institution’s strict lending policies and regulations. Trustworthiness: Building trust through the borrower’s reliability and financial history.

Sometimes, decisions are a combination of these factors. If a lack of trust is a primary issue, the other factors become irrelevant.

The Need for More Cash: Why It Takes Time

Our clients are advised not to withdraw all the requested amount in cash. Instead, we prefer granting them financial instruments such as teller’s checks, which serve as a safer means. We also require two weeks to process large cash orders due to government regulations and logistics.

The need for cash arises from various reasons:

Depositor Safety

Safeguarding customer deposits is a paramount concern for banks. Cash is subject to theft, and handing over significant amounts of cash can attract unwanted attention. A key example involves an elderly woman who despite not handling her bank accounts, required a substantial amount of cash for shopping. To protect her and others, we typically provide a teller's check.

Government Red Tape and Anti-Money Laundering Practices

Banks must comply with government regulations. For instance, all withdrawals and deposits over $10,000 must be reported to the Federal government. This practice, known as Know Your Customer (KYC), is essential for preventing money laundering. By keeping detailed records, banks ensure regulatory compliance and protect against illicit activities.

Operational Efficiency and Security

Large cash withdrawals require adequate planning and logistical arrangements. Banks keep a reserve of cash sufficient for the day-to-day operations. Additional cash orders can take time, and recounting the cash ensures accuracy.

For example, a $20,000 or $30,000 car withdrawal might require a substantial amount of cash that is not readily available. To avoid potential issues, banks take the time to order the necessary cash, recount it, and ensure that all checks are in order before fulfilling the request.

Conclusion

While the convenience of large cash withdrawals is clear, the practical and safety-related reasons make it less viable for banks. Depositors are encouraged to make use of safer alternatives like teller’s checks, which maintain depositor safety, comply with regulatory requirements, and simplify the logistics of managing large cash transactions.

In closing, banks prioritize security, compliance, and efficiency in handling their customers’ requests. By understanding the reasons behind bank policies, customers can better manage their financial interactions and ensure that their needs are met safely and effectively.