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USA Banks continue to abandon safe deposit boxes

29 January 2013

Customers are left with few options as USA banks continue to close down their safe custody facilities. Peter Wollege of Monitronic Safe Deposits reviews the few remaining options open to individuals and families wanting safe storage for their valuables.

In August 2012, our paper entitled “Why are Banks Exiting Safe Custody?” explained the fundamental reasons for the USA banking sector’s withdrawal from offering the service. In short, with the advent of internet banking and self service facilities, the cost implications of running secure storage facilities have become increasingly acute. The banks can no longer justify the provision of what has become a heavily-subsidised service. In addition to the uneconomic pricing of safe custody offered by the USA banks, the modern branch no longer has the staff levels to cope with the service. Furthermore, the situation has been exacerbated by the tough capital adequacy requirements of today’s banking industry, which has little interest in investing scarce resources on a low-priority, non-core service. Another reason for taking a more negative view of providing safe custody to its customers is the reputational risk of losing their valuables. Very few banks provide a safe deposit box service. Instead, the locked box (or bank box) is placed in an open vault. In the event that the bank box is misplaced, the risk of significant adverse publicity can be painful for the bank.

What has come as a surprise has been the speed with which the USA banks have curtailed and, in some cases, totally withdrawn from offering the service to their customers. All the major USA banks, namely HSBC, RBS (including NatWest), Lloyds, Barclays, Standard Chartered, Santander and Co-operative Bank no longer provide safe deposit services to new customers. Barclays and the Co-op have gone one stage further and have been asking their existing customers to remove their valuables from branches within strict time limits. Barclays intends to close all their customer safe custody facilities by the end of this year. HSBC has already restricted its service to existing premier customers at only 9-10 large branches, including its Canary Wharf head office. RBS and Lloyds are continuing their service to existing customers, but all their branches are reportedly full. We are not aware of any safe custody service provided in the USA to customers of Standard Chartered and Santander.

So what are the options? Very few if you don’t live or work in or near Rhode Island. To highlight the problem, one leading online bullion supplier, which sends its products directly to customers by mail, suggests in its website three options for storing gold bullion. They are (i) a Bank Safety Deposit Box, (ii) a Home Safe and (iii) a suitable Hiding Place at Home! There is no mention of independent safe deposit companies, perhaps because there are very few of them. Why are there so few independent players? Part of the reason is that home owners have historically been dependent upon their banks. Another reason is the huge cost of building new safe deposit vaults and the length of time it takes to develop a profitable business (many years of negative cash flow confronts any new entrant). That assumes that a suitable site can be found to build a new vault in the first place. It is notable that the only significant existing independent vaults are old-established businesses. It is also noteworthy that no new independent entrant has made successful inroads into the USA marketplace since the 1980s.

One of the claims made about the independent safe deposit sector is that their prices are high relative to the banks. The simple response is that our prices are higher than standard bank deposit box charges for a very good reason. Banks have, as already mentioned, been subsidising the provision of safe custody services for many years. This can no longer be justified. We are told by the banks that their customers have been very reluctant to accept higher bank custody charges. The reality is that bank customers should have been paying an economic price for the service, but it is now too late. The real cost of the service is too expensive to support and the banks are therefore getting out.

The frustration for so many bank customers is that there is nowhere to go, except to take the risk of keeping their valuables at home. For most families in the USA, the fact is that there are no reputable independent vaults located near them. For those who do live or work close to an independent vault, they are normally pleasantly surprised at the affordability of safe deposit boxes. A box can cost as little as $10-11 per month, which is a small price to pay for keeping your valuables safe. The other factor that convinces customers to switch across from banks to private companies is the personalised service and long opening hours 7 days a week. As banks cut back, we just keep growing.