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Transcript of Video 1 – “How Big Banks Invest Their Safe and Liquid Reserves”
At Bankingtruths.com we help people substantially enhance their wealth building efforts by helping them build their own private family bank. Before doing so, we thought it would be a good idea for you to see the balance sheets of two of the biggest banks in America. That way you can see for yourself how these big banks invest their liquid reserves for maximum efficiency.
Although the name will remain grayed out, what I can tell you is the first one is a very patriotic bank, if you know what I mean. As you look at the screenshot below from FDIC.gov, remember that the definition of a balance sheet is an itemized list of the bank’s assets as well as its liabilities. In other words, this is what the bank owns and what it owes.
If you look closely at line 41 (below), you can see that this bank owns life insurance, and they refer to it as an “asset” right on their balance sheet. Looking even closer you can see that the number associated with life insurance is pretty substantial. It appears to be an asset worth over 21 million dollars.
But actually, if you look back at the first screenshot, you can see that the title of that column is “dollar figures in thousands.”
That means that we need to add a comma and three zeroes to every number in that column. So it’s actually over 21 billion dollars that the bank has invested in life insurance assets. To clarify, this is not how much death benefit these policies would pay, because that wouldn’t show up on a current balance sheet. This number represents how much cash value these policies hold, which is totally liquid and accessible to the bank.
On lines 10 and 11 on this same balance sheet, you’ll find a much more popular and familiar asset class: real estate. If you combine both the lines titled “bank premises” and “fixed assets – other real estate owned,” their investment in real estate totals a little over $9 billion.
So why, you ask, does life insurance make up more than double the amount that the bank owns in real estate?
Below I will list the five major benefits that big banks get from parking billions of dollars into these life insurance policies they have taken out on their key executives.
- Life Insurance delivers a competitive yet safe growth rate on cash. The banks get a much better growth rate from these life insurance policies than they do things like CDs, bonds, or commercial paper. Many of these policies are structured to where the bank is taking on zero market risk so they don’t have to worry about annual losses, yet they still get a very competitive growth rate.
- Life Insurance offers tax-sheltered growth. Whatever growth rate the banks actually do get feels so much bigger each year because the cash value growth inside life insurance is not taxed. Because the U.S. government deems life insurance to provide a social good for widows, orphans, and businesses that may fail due to the death of a key executive, the IRS chooses not to tax the growth inside of life insurance policies. The government incentivizes society to protect itself with life insurance that never expires by offering this tax-shelter for cash growing inside permanent policies.
- Life Insurance provides guaranteed access to liquidity. In order for the banks to put that $21 billion figure on their balance sheet, the cash value has to be fully accessible to the bank. If they wanted to they could access that cash at a moment’s notice to invest in their business operations, equipment, real estate, spend it frivolously, or do whatever they want with it at any time for any reason. Most people don’t realize that their own policies can be structured to be highly liquid from the get go.
- Life Insurance has built-in death benefit protection. If any of the bank’s top executives were to pass away for whatever reason, the bank would get a substantial tax-free death benefit to make up for their loss. This kind of protection is so much more important for a small business or a family losing its main breadwinner than a major bank losing its top three executives in a plane crash. What’s ironic is that the bank has an abundance of protection on layers of employees and yet most families and small businesses are not even close to being adequately protected against the loss of their drivers. Perhaps if they knew how to structure life insurance to be an asset rather than an expense (like the banks do), then acquiring the proper amount of coverage would not be an issue.
- Life Insurance allows for high funding limits. These particular policies owned by the banks are tied to different compensation plans for their key executives. Otherwise, both the bank and the executives would be limited to how much money could go into their 401K plan, profit-sharing plan, IRA, SEP, and so on. Also, since these executives have high incomes, they aren’t even allowed to contribute to a Roth IRA. This is not the case with life insurance plans. Therefore, the banks take full advantage of these generous funding limits to provide robust retirement plans using life insurance policies designed for maximum cash value accumulation.
Just to prove that this is not an anomaly let’s look at the other major bank in America. Again, we have grayed out the name below, but you get the picture.
If you look at the real estate holdings number, it’s just under $9 billion similar to the other bank.
If you look at their line 41, this bank has just over $18 billion in life insurance.
So again, this major bank has more than double the amount of life insurance than in total real estate.
For the top financial institutions in America to commit billions of dollars’ worth of their liquid reserves, there must be something good going with permanent life insurance. It’s unlikely that some slick agent went in there and bamboozled them out of billions of dollars.
There must be some way to design life insurance policies so that the policyholder benefits substantially from the asset even while the insured is still alive. That is exactly what we do at BankingTruths.com.
As a team of independent brokers, we help our clients match their particular health situation with the insurance company that will be most generous with them and help them optimize this personal banking system. We then help them design their policy to minimize expenses and maximize cash value growth, similar to how banks themselves do.
Transcript of Video 2 – “The Strategic Forces Behind the Private Banking Concept”
Banks profit exponentially off almost everyone in America.
Either they’re lending you money to buy cars, real estate, business inventory or equipment:
Or you’re parking your cash safely inside their holding tanks so that hopefully you won’t ever need any of their loans. Meanwhile, they’re loaning out every single dollar of your savings multiple different times for a handsome profit while they give you peanuts for the use of your capital:
Either way, they win.
This video will show you how to profitably run those exact same cash flows through your own private banking unit to build two assets at once and to get your money wearing multiple hats. Now in order to explain how to do this for yourself, we’re going to dissect both of the ways that banks profit using the example of a real estate investor.
Keep in mind though that this exact same model can be used by business owners investing in their business or by fiscally responsible consumers with their major purchases in life.
Let’s first look at traditional bank financing for ongoing real estate investments. You essentially borrow against the property itself to qualify for the bulk of the capital necessary to acquire it.
You then must make ongoing structure principal and interest payments to pay off that loan and get yourself back to even. Eventually though, you’ll want to invest in yet another property, so you again have to prove not only your own credit-worthiness, but also the feasibility of the project you want the money for. So long as you continue to be steady and diligent about paying back the bank according to their terms, you should be able to hopefully continue financing your real estate empire.
But be very clear about the fact that there is no guarantee that banks will continue to make this liquidity available to you. If it’s a soft economy, or if for whatever reason they don’t share the same vision for your project, they can just pull the plug on your financing.
This is all the more reason to save up your own cash, so you don’t need to rely on bank loans. Let’s face it. Some people simply hate the concept of borrowing, even if it helps them exponentially acquire more assets. They would just feel better paying cash for every single property they buy and not being on the hook to anyone.
Well in order to do so, you first have to save up enough capital in a bank account that earns very little or no interest.
Then once you acquire that first property, you own it free and clear, and you don’t owe anybody anything.
Even though you don’t need to pay any debt service to banks for the use of their money, if you want to buy a property in the future, you still have to continue making ongoing payments into one of their accounts earning very little or no interest. That way you have enough cash in the future to purchase that next property free and clear.
Because of this, the payment structure you have is nearly identical whether you pay cash outright for every single property or you finance them 100% using bank loans.
Now some of you may be saying, “Wait, when I pay with my own cash, at least I don’t need to pay interest for the use of the bank’s money.”
True, but remember that you are passing up earning a reasonable interest rate on your own capital by keeping it safe and accessible inside their coffers. In fact, you’re voluntarily not gaining any ground whatsoever on this very large block of liquid assets in between every single property purchase.
Even if interest rates go up considerably in the future, you wouldn’t be able to take full advantage of it because as soon as you get your account to the point of critical mass, you kill your compound curve every time you withdraw that cash to buy another property.
And it doesn’t need to be that way.
For the rest of this video, I’m going to show you how to create a money multiplier effect with your own bank by keeping your liquid reserves safely and continuously compounding for you, even though you have them doing double duty elsewhere.
You see, in a perfect world, you’d save up assets one time and they’d go ahead and compound into the future. What’s so powerful about compounding is you not only earn interest on your principal, but pretty soon you earn interest on the interest through principals already earned. It creates this wonderful snowballing effect.
That’s why the curve on the right is a lot steeper than on the left. In fact when I ask clients, “Which side of this curve would you rather have?” Everybody wants the steeper side on the right, but you don’t get that without putting in your time on the early part of the curve. You see, it’s just time value of money. Keeping assets continually compounding over time is the key.
Unfortunately though, these purchases do need to be made. Every time they are, it just resets our compound curve to the very beginning, killing our chances of ever getting to the far right-hand side of that curve.
That is unless there is a way to contractually borrow against our assets at any time for any reason. You can see when we do, that red line comes down, indicating there’s a lean against our asset base, but notice that the entire asset base continues to compound up that green curve. As we pay down the lean against the assets, we actually end up at a higher place in line each and every time.
That’s really the biggest component of this strategy. The fact that your entire asset base continues to compound in your favor in spite of having used some of it to make those purchases.
Now it helps too that the asset class we’ve chosen also happens to grow each and every year at a very favorable rate of return: a rate that does not start with a dot. It’s also immune to market losses and immune from taxes as well. All these things work in its favor.
The cash flow and payment structure that we’re using assumes an apples to apples comparison with somebody paying cash. The fact that you don’t have your entire asset base compounding for you when you withdraw cash from an account to make a purchase, you’d need such an astronomical rate of return to make this work and to overcome any taxes due that it simply just pales in comparison to how effective the banking strategy can be.
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