Safe-deposit boxes, a banking relic, fade away

Tuesday, Nov 01 2016 03:44 PM

In February 2009, a Brooklyn construction worker named Leiby Goldberger closed his safe-deposit-box account. He didn't really have a choice, because one night that month, a crew of thieves drilled a hole into the roof of his bank, Astoria Federal Savings, then plundered his safe-deposit box and more than 60 others. Mr. Goldberger was robbed of about $300,000 in cash, according to state court documents, as well as jewelry left to him by his mother, who died when he was 2.

"I lost my life savings," said Mr. Goldberger, who received an undisclosed settlement after he sued Astoria Federal. Eight months after the theft, his house went into foreclosure. In a desperate attempt to restore his fortunes, he started marketing a product called Accupresh, which allows people to self-administer acupuncture.

"I haven't decided where I'll keep my money when I make some," Mr. Goldberger said. "But it won't be in a safe-deposit box." A lot of people feel the same way. Safe-deposit boxes, a service offered by banks since time immemorial, are slowly being abandoned. More and more branches aren't offering them, and bankers say fewer consumers are asking for them to stick away family heirlooms, important legal documents, cash or even guns.

"It's a relic. The business is fading away," said Paul Sanchez, executive secretary for the New York State Safe Deposit Association, a 107-year-old trade group that's down to its last 50 members—just 11% of all banks licensed to do business in the state, according to the New York Department of Financial Services.

"Demand for safe-deposit boxes has dropped significantly over the years," a Bank of America spokesman confirmed. Officials at other big banks concurred.

Bankers cite several reasons for the boxes' demise.

Out of step

For starters, the contents aren't federally insured like deposits in checking or saving accounts, which came as surprising news to some consumers whose boxes were flooded by Superstorm Sandy.

Additionally, people who use the boxes to keep their cash stashes secret from the IRS or other authorities have to grapple with the fact that, since 9/11, banks are under increased pressure to report suspicious financial activities—and frequent trips to the safe-deposit box could certainly qualify as suspicious activity.

But most of all, safe-deposit boxes are simply out of step with today's world. Consumers, of course, can securely store wills or insurance policies online, and the idea of waiting for a bank employee to open the vault so a customer can gain access to their jewelry or family photos just won't do anymore.

"The younger generation doesn't even know what a safe-deposit box is," said Robert Nemeroff, marketing director at Melrose Credit Union in Queens, where about half of the 250 safe-deposit boxes are rented.

Precise numbers about safe-deposit boxes are impossible to come by because no government agency or industry trade group tracks how many are rented or even exist. The American Bankers Association referred questions to David McGuinn, president of consulting firm Safe Deposit Specialists, who is considered the nation's foremost expert on the boxes. Mr. McGuinn, 69, estimated that 8 million safe-¬deposit boxes are rented across the nation, but added, "I've been using that figure for 30 years."

No study on safe-deposit box use seems to have been conducted in the U.S. in years. The most recent study was published in 2011 by two researchers in Iran, who in an article titled "Marketing Principles of a Neglected Banking Service" concluded that 10% of that nation's safe-deposit boxes were rented.

So where are New Yorkers storing their valuables? The answer can be found at the fashion-district showroom of the Acme Safe Co., where a marketing expert named Gail Auger alternately charms and alarms customers into buying the biggest safe they can afford.

Prices range from $300 for a footlocker-size model to several thousand for something resembling an armored wardrobe. Acme, founded in 1904, has its roots selling safes to jewelers, but consumer sales have boomed since the financial crisis.

"I think our business has increased by 20% or 25% a year—definitely," said Ms. Auger, Acme's director of business development, adding that turnover is so strong that the store receives a 20- by 40-foot container of new safes every month.

Robberies are rare

Ms. Auger attributed Acme's growth in part to the public's losing confidence in banks. The memory of large financial institutions collapsing or needing bailouts hasn't dimmed, and hundreds of small banks failed after housing collapsed. She said that, at least among those who can afford $6,000 for their own armored safe, the bank failures raise fears that access to safe-deposit boxes might be cut off temporarily.

She added that robberies and burglaries are on the rise, and even a luxurious Manhattan apartment building with a doorman isn't as safe as some might assume.

"The doorman always knows where you are and might be a very honorable man but might tell someone that you're out of town," Ms. Auger warned. "There are lots of inside jobs."

Still, law-enforcement experts say keeping valuables at home is less safe than putting them in a safe-¬deposit box. "As a place to store valuables, the safe-deposit box is the safest option," said Timothy Horner, a managing director at Kroll Advisory Services and a former New York City police captain.

Notwithstanding Mr. Goldberger's tragic experience, safe-deposit box robberies are exceedingly rare. Only 18 of the 5,014 bank robberies nationwide in 2011 involved the safe-deposit area, according to FBI data, and the total number of bank robberies declined by 10% from the previous year. The number of safe-deposit box break-ins changed little.

Meanwhile, in New York, burglaries and robberies increased by 5% last year, to 39,681, according to the Police Department, although it isn't clear how many times residential safes were broken into during these crimes.

Dennis Lormel, a former chief of the FBI's financial-crimes section, said a good home-security system, with an alarm wired to the local ¬police department, is more important for keeping valuables secure than a big, strong safe.

"I keep some things in a safe at my home, but I don't doubt that if a thief was able to get to it that it would be compromised," he said. "That's why I don't keep anything terribly valuable in it."

Truth be told, bankers aren't unhappy to see the safe-deposit box business fade away. The boxes rent for only about $200 to $500 a year, which isn't enough to justify the cost of maintaining them, not to mention the potential liability that comes when angry customers sue because, say, an unauthorized person was allowed to open the box or it got accidentally destroyed during a branch renovation.

'Loss leader'

"Deposit boxes are a loss leader; they have never been a profit center," Mr. Nemeroff said. "You offer them to customers in the hopes you'll build a business relationship with them. But people come into brick-and-mortar branches a lot less than they used to."

That said, safe-deposit boxes remain popular in certain precincts. Immigrants frequently use them because their apartments—or the rooms they rent—often aren't terribly secure, said Jimmy Tsai, chief operating officer of Amerasia Bank in Queens.

Still, even among immigrants, safe-deposit-box use is declining. Mr. Tsai estimated that 85% of the boxes at his bank's Flushing branch are rented. "We used to have no vacancies and a waiting list," he noted.

 

A version of this article appears in the May 20, 2013, print issue of Crain's New York Business.