EU Agrees Banking Union - Bail-Ins Cometh

[dixiegrrrrl]

During the Cyprus bail in, many a discussion here at DU about possibility of future bail ins.

Read it and weep:

In the early hours of yesterday morning European Union politicians struck a deal on legislation to create a single agency to handle failing banks and bail-ins in the Eurozone after another all night negotiating marathon ahead of a summit of EU leaders starting in Brussels today.

Snip:

Negotiators persuaded nations that had been opposed to the proposed Single Resolution Mechanism and the legislation for bail-ins to agree.

Insolvent banks will be treated equally regardless of the country they are based in. Failed banks creditors, both bond holders and depositors, will be subject to bail-ins in the same way in all countries.

“It’s a very good agreement,” European Central Bank President Mario Draghi said before the meeting of EU leaders in the Belgian capital. The banking union was shaped in part by Draghi and he hailed the compromise plan as “great progress for a better banking union. Two pillars are now in place."

Snip:

It is important to realise that not just the EU but also the UK, the U.S., Canada, Australia, New Zealand and most G20 nations all have plans for bail-ins in the event that banks and other large financial institutions get into difficulty.

http://www.zerohedge.com/contributed/2014-03-22/eu-agreed-banking-union-yesterday-global-bail-ins-cometh
( linked article is halfway down the ZH page.)

[djean111]

1. So - banks will be like Lloyd's of London?

They can speculate with derivatives, and if they fail, they can just take stockholder bonds and savings accounts and investment portfolios?
Is that the gist of this? Is this better or worse than the public bailing banks out and getting nothing in return?
Will interested parties have more say in what banks invest in?

[dixiegrrrrl]

2. To answer, in order asked:

1. Yes
2.Yes and worse, because not only do you get nothing in return, you lose money you thought was safe in your bank account.
3. No. No one tells the banks what to do, they tell the politicians what do to.

[djean111]

3. Thanks.

Will this also apply to credit unions?
And - I would like to see the list of seizable assets - presumably they wouldn't be able to foreclose on houses with low mortgages compared to value and sell them!
There must be a middle ground where taxpayers don't have to bail them out,. though. Still pisses me off they got bailed out on mortgage deriviatives, but the people still owed them money. Double dipping.

[dixiegrrrrl]

10. Dunno the details.

I had posted a link many moons ago to the pdf of the Canada/US bail in agreement.
Maybe if you google for it, it is still available.

The 'seizable assets" are deposits, savings and checking.
in Cyprus, they originally tried to take 25% of everyone's deposits, then a few weeks later changed that to 20% of deposits over 250,000 and 10% of deposits under that amount.
Note: The Cyprus equivalent of FDIC did not cover those losses, since the banks did not go bankrupt and close.

[muriel_volestrangler]

13. Incorrect - they eventually decided to take nothing from below €100,000

see links in #11. Taking money from the amounts guaranteed would probably have been illegal.

[reformist2]

4. Since bankers are clearly arm-in-arm with government, they all short make gov't salaries.

[muriel_volestrangler]

5. This is the Icelandic model, that had been very popular on DU

until now, it seems. If a bank gets into trouble, then bondholders and depositors will be held liable, like they were in Iceland.

http://uk.reuters.com/article/2014/03/20/uk-eu-bankingunion-idUKBREA2J0IW20140320

Why do you think DUers should weep? Depositors will still be covered up to 100,000 euros, so when they say depositors will be liable, it's large depositors.

[ms.smiler]

6. muriel_volestrangler, I understand that my deposits in the U.S. are insured by the FDIC

up to $250,000. I am though uncertain of a few things. I wonder if the FDIC is truly prepared to handle the failure of any large banking institution. I also wonder how long must I wait until I receive the funds from the insurance?

As I understand, the FDIC insures the deposits but there is no particular time period when the insurance must be paid. So I think it possible, even likely that upon the failure of a large banking institution, depositors could wait 6 months, 9 months, a year or more waiting to regain their money which is unsettling.

[muriel_volestrangler]

7. I don't know how the US would handle a big failure

Again, in the Icelandic case, they had a deposit guarantee scheme for the equivalent of the first €20,000 or so, which they said would cover the British and Dutch people who had savings accounts with Icelandic banks. When the big 3 Icelandic banks failed, what the Icelandic government did was cover the deposits of Icelanders, and told foreign depositors the scheme was bust, and they'd have to wait to get their €20,000 (or less, if they had less in there, of course) until the banks' assets had been sorted out. The British and Dutch governments didn't like that, so they covered the deposits themselves, and demanded the Icelandic government pay them back for it, with interest. After about 4 years, a European court decided in Iceland's favour - that there was no obligation to pay for the deposits by the government, and so the gradual sale of bank assets was all that should be used. By the end of 2013, the failed banks had repaid about half of the value of the guaranteed deposits, and reckon they'll be able to complete that by 2017. But there won't be enough to cover any interest.

So, yes, it can take many years to get money deposited in accounts back. The general feeling on DU has been that Iceland handled this perfectly - that anyone putting money in an overseas savings account didn't deserve to get anything out of the guarantee scheme they'd been told existed.

[dixiegrrrrl]

9. See my answer #8,below. n/t

[dixiegrrrrl]

8. In the case of Cyprus, it was decided that there was no insurance coverage

because the banks that held the depositors money had not failed.Actually, the banks had jsut got wealthier.
So insurance did not cover the lost deposits.

[muriel_volestrangler]

11. No, in Cyprus, the eventual outcome was that deposits up to €100,000 were transferred to a good bank

and the savers still had access to them. It was savings above the €100,000 limit that were affected:

http://www.bbc.co.uk/news/business-21922110
http://www.businessweek.com/news/2013-03-30/bank-of-cyprus-s-customers-may-lose-as-much-as-60-percent-on-deposits
http://www.collyerbristow.com/fileserver.aspx?oID=2157&lID=0

[dixiegrrrrl]

14. ahhh...yes...thanks for the memory jog.

I am also remembering that they institututed capital controls, which really screwed up business and personal bill paying.

[ms.smiler]

12. So now I’m remembering when the credit markets “froze.”

Many banks hadn’t failed but they had those “toxic assets” and no one trusted other banks. The whole system would supposedly fail without a heavy lift from taxpayers.

So, legally, what constitutes a bank failure? Who declares a bank failure? Must a bank failure be declared or can it be ignored or called something other than a bank failure?

We seem, like Cyprus, to have banks that don’t supposedly fail but seriously dysfunction in some way. So I’m wondering about the next time the system “freezes” or “seizes” or the banksters choke on “toxic assets” they created, will FDIC insurance mean a thing?

Can a bail-in be deemed necessary without a declared bank failure that would trigger FDIC insurance?

[dixiegrrrrl]

15. The whole purpose of the bail ins was to prevent declaration of bank failure.

Or so they said.
Have you ever seen the failed bank list?
It was something a lot of us followed during 2008 and subsequent years.
http://www.fdic.gov/bank/individual/failed/banklist.html

At that time, it was supposed to be the FDIC that declared a bank failure, on the theory that FDIC was keeping an eye on the banks.
But after the rash of bank failures, FDIC reported it was running short of insurance fund, because the banks were not
contributing into the fund as they were supposed to.
Now that we all know there seem to be no rules, and no sanctions on any violations, I have no clue what is still in place.

The Feds once again have completed a stress test on the TBTF banks, and declared all was well.
Except it wasn't and now stories are coming out about the banks that failed the stress.

I do know there will not be bail ins without capital controls, so anyone who needed a hunk of cash would be out of luck. In Cyprus, the banks closed on a Friday, and remained closed for almost 8 days, limiting withdrawals, preventing any money from leaving the country, etc. while trying to figure out how much money they could steal of deposits.
It was confusing and chaotic. And destroyed faith in banks for most intelligent people.

[ms.smiler]

16. In my family, “faith in banks” was destroyed in the Great Depression.

I don’t need to learn a lesson already taught to my parents and grandparents.

dixiegrrrrl, you helped refresh my memory, thank you.

Our government has already demonstrated to us that rather than allow any large bank to fail, they will reach into our pockets to support powerful incompetent & reckless banks. A “bail in” seems to me like a reach into my “depositor” pocket rather than my “taxpayer” pocket. Is that somehow better or preferable?

My father had one bank account and kept just enough money in the account so that he could cash his paychecks. Like me, my son stores only enough in a bank account to pay utilities and other bills on occasion. We store some wealth in currency outside of banking institutions, but most wealth is stored in tangible things under our control.

Like me, my son avoids risk positions so we have no investments on Wall Street or mutual funds, securities, etc. The parties selling those things are in the risk free position, guaranteed to earn commissions and fees and as business owners; it’s the same position that appeals to us.

I remember years ago when I went with friends to a casino in Atlantic City and promptly determined that I didn’t want a seat at the poker table, I wanted to be the house. Of course I couldn’t be the house, so I left my friends at the poker table in favor of a seat where I could spend my time people watching.

So a future is possible where we again have “troubled” but not failed banks, which could be closed for days or weeks, FDIC wouldn’t apply, when banks reopen we’ll likely have access to our money in dribs and drabs, and hopefully little will be stolen from us. Oh, let me guess. In lieu of currency, maybe we’ll be offered Share Certificates in the “troubled” bank. We can all then hope that one day, our children will find the Certificates and turn them in and collect their $37.50 USD.

I’m pretty close to concluding that this is simply yet another license to steal issued to bankers.