No banks are safe (bail ins, FDIC limits, systemic risks)

[pmbug]

Following the news that TBTF Cypriot zombie banks will steal from depositors rather than go through normal bankruptcy, we heard that Canada was ready to abandon fiduciary responsibility too. Now there are reports that the USA and the UK have an agreement in place to do the same:

...
In the introduction, the resolution informs readers that the FDIC and the Bank of England have been working together to formulate the new bail-in model for future bank failures:

The Federal Deposit Insurance Corporation (FDIC) and the Bank of England—together with the Board of Governors of the Federal Reserve System, the Federal Reserve Bank of New York, and the Financial Services Authority— have been working to develop resolution strategies for the failure of globally active, systemically important, financial institutions (SIFIs or G-SIFIs) with significant operations on both sides of the Atlantic.

The goal is to produce resolution strategies that could be implemented for the failure of one or more of the largest financial institutions with extensive activities in our respective jurisdictions. These resolution strategies should maintain systemically important operations and contain threats to financial stability. They should also assign losses to shareholders and unsecured creditors in the group, thereby avoiding the need for a bailout by taxpayers.

The joint US/UK resolution states that depositor haircuts are already legal in the UK thanks to the 2009 UK Banking Act:

In the U.K., the strategy has been developed on the basis of the powers provided by the U.K. Banking Act 2009 and in anticipation of the further powers that will be provided by the European Union Recovery and Resolution Directive and the domestic reforms that implement the recommendations of the U.K. Independent Commission on Banking. Such a strategy would involve the bail-in (write-down or conversion) of creditors at the top of the group in order to restore the whole group to solvency.

And that the legal authority has already been given in the US buried in Dodd-Frank:

It should be stressed that the application of such a strategy can be achieved only within a legislative framework that provides authorities with key resolution powers. The FSB Key Attributes have established a crucial framework for the implementation of an effective set of resolution powers and practices into national regimes. In the U.S., these powers had already become available under the Dodd-Frank Act. In the U.K., the additional powers needed to enhance the existing resolution framework established under the Banking Act 2009(the Banking Act) are expected to be fully provided by the European Commission’s proposals for a European Union Recovery and Resolution Directive (RRD) and through the domestic reforms that implement the recommendations of the U.K. Independent Commission on Banking (ICB), enhancing the existing resolution framework established under the Banking Act.

The development of effective resolution strategies is being carried out in anticipation of such legislation. The unsecured debt holders can expect that their claims would be written down to reflect any losses that shareholders cannot cover, ...

...

More: http://silverdoctors.com/fdic-bank-...limited-cyprus-style-bail-ins-for-tbtf-banks/

Wall Street bankers breath a sigh of relief as their multi-million dollar bonuses are now safe. Instead of losing their jobs when the bank is dissolved in bankruptcy, they are going to get fat on the backs of depositors.

Edit: I found the source document that SD is quoting:

Resolving Globally Active, Systemically Important, Financial Institutions

A joint paper by the Federal Deposit Insurance Corporation and the Bank of England

10 December 2012
...

http://www.bankofengland.co.uk/publications/Documents/news/2012/nr156.pdf

 

[ancona]

So, we're all unsecured creditors now. Well that sucks. Most of us here grew up believing that our money was simply sitting in the bank, and when they made a loan at higher interest than they paid us, they kept the vig but still allowed us access to our meager little stash. Not so true any more I fear. These days "they" will simply do as they please with our loot and we will shut up and take it....or else.

 

[DoChenRollingBearing]

...

Slow bank run... I have been doing that for quite a while now. I get money, I take money OUT of the bank. Some stays in CA$H, some goes to buying gold. Nothing that has happened this year changes my view.

Nor did anything that happened last year, or in 2011, 2010, 2009, 2008, 2007.....

 

[mmerlinn]

Bottom line is that the ONLY safe bank is a depository bank, one where they charge you to safely STORE your money. Of course, that does not mean that the Feds could not steal it anyhow, just like FDR stole the gold from safe deposit boxes. It only means that you have taken one variable out of the equation - gambling by the banksters.

 

[Jay]

...

Slow bank run... I have been doing that for quite a while now. I get money, I take money OUT of the bank. Some stays in CA$H, some goes to buying gold. Nothing that has happened this year changes my view.

Nor did anything that happened last year, or in 2011, 2010, 2009, 2008, 2007.....

Ditto, except Bing (my wife) buys gold, I buy silver. I honestly don't have a single piece of gold; I'm waiting to see my first Krugerrand....

 

[dontdeBasemebro]

...I honestly don't have a single piece of gold...

Me too.






:wave:



I am assuming that the aren't, but just to throw it out there...

Are credit unions any more secure than the regular banks?

 

[mmerlinn]

I am assuming that the aren't, but just to throw it out there...

Are credit unions any more secure than the regular banks?

Since they do the same thing as banks, but on a more limited scale, I don't see them being much more secure. They can still have bank runs, still freeze your accounts, etc. And they still loan out the money you "loaned" to them for safekeeping. Just a smaller, usually more local bank in my view.

 

[bushi]

re: Credit Unions, I can only speak on these that I have researched myself, and these were Polish ones. I was doing a little research about their statutes, and the largest "union" of Credit Unions there (that all other local CUs are required by law to be associated in), in their statute, had a loophole, that would allow them to invest client funds into "other financial instruments". It is funny, how these three seemingly "benign" words were buried deeply in the statute, yet effectively, it allows them to do pretty much the same funny things with your money, as other banks. And all the rest of the statute, was about how one people save, the other will get credit for housing, and blahblahblah.

No need to say, I've lost all my interest in them right after digging up these three little words. No substantial difference between them & banks, and when the financial system collapses, they will be as leveraged & on a hook as anyone else in financial sector.

So to summarize, I would strongly suggest, to read their statute, and follow up EVERY reference, to a word, rather than assuming that "we all know how Credit Unions work". We don't

 

[pmbug]

...
Are credit unions any more secure than the regular banks?

FWIW (from 2008): http://www.creditwritedowns.com/2008/07/credit-unions-arent-immune.html

See also: http://www.pmbug.com/forum/f4/bank-transfer-day-74/

And this site for rating banks was recommended to me on another forum a long time ago (in 2009):

...
Normally, I wouldn't trust anything from thestreet.com but a few years ago they bought Weiss Ratings - a VERY reputable bank rating service and from what I understand they have not messed with it. You can screen your bank and also screen for high and low-rated banks in your area. The URL is here:

http://www.thestreet.com/bank-safety/index.html?src=ratingsindex&tab=3

 

[ancona]

Actually, our credit unions are safer than banks because of their charters. The first thing that helps is they are limited to a specific geographic or demographic area, which means it is impossible for them to get TBTF. The second thing is that they are non-profit, so they have minimal fees and no motivation to fuck their clients. Third is they cannot use bank funds for anything other than loans; no investing, no gambling, just loans. Fourth is that every member has a vote. fifth is they are limited severely as regards leverage. They cannot lever out twenty and thirty times.

All in all, if one were to be faced with choosing between JPM or a credit union, I would choose the CU every time. I am forced by circumstance to maintain a couple of accounts with BOA and one with Wells Fargo. Both banks fuck me at every turn of the road. The credit union however, is the best banking experience I have ever had. My wife and I bank at two local credit unions, and each one is as good as the other. Given my way, I would move all of my funds in to the credit unions.

 

[pmbug]

Krugman in NYT has commentary arguing for capital controls today. Disgusting.

http*//www.nytimes.com/2013/03/25/opinion/krugman-hot-money-blues.html

 

[bushi]

that is Mish's response, on how Krugman is partially right - but for all the wrong reasons:

http://globaleconomicanalysis.blogspot.com/2013/03/rational-reason-to-panic-hot-money.html

As is typically the case, Krugman gets part of the story correct, the sensational part (which helps explains his popularity). Everything else he says is generally rubbish.

Krugman is correct that Cyprus is going to be ugly. And he is sure to follow up with numerous "I told you so" articles when that happens.

This is where common sense stops and nonsense begins. Europe and the US do not suffer from lack of capital controls. The origin of this crisis is fractional reserve banking in and of itself.

The Krugman "solution" is more government controls, more taxation, more regulation, more manipulation, even to the point of actually advocating the "bad old days" when everyone had capital controls.

In addition to capital controls, Krugman advocates tariffs, advocates higher minimum wages, higher taxes, and more government spending.

Good grief!


Money flows to places like Cyprus, Luxembourg, and Spain "because of " inane Keynesian and Monetarist programs elsewhere.

Not once does Krugman ever stop and think that the very policies that he espouses are precisely what has caused the capital flight!

Rather than address the root problems, Krugman now wants capital controls on top of all the other foolish things he desires.

When does it stop Paul? When?

Read more at http://globaleconomicanalysis.blogs...n-to-panic-hot-money.html#RJvEUZR8M6UxoCGb.99

EDIT:

this is quote from Krugman's piece:

And it’s not just Europe. In the last decade America, too, experienced a huge housing bubble fed by foreign money(sic!), followed by a nasty hangover after the bubble burst. The damage was mitigated by the fact that we borrowed(sic!) in our own currency, but it’s still our worst crisis since the 1930s.

WTF?! "fuelled by foreign money"?! Is this guy for real? How possibly a Nobel Prize winner can make such a fucking retarded claim, and openly dishonest one? So Fed and their low interest rates, Affordable Housing programmes, Fannie & Freddie, are all fucking "foreign money" now, yes? Better yet, he contradicts himself in the very next sentence, "WE borrowed in our own currency". This guy is a fucking joke! I will have to remember to NOT listen or read his pieces, just as I've stopped watching anything with "Pierce Morgan" in it's title, to save meself from collecting too much of a negative Karma.

UGH, what a slimy, disgusting, treacherous bastard!

 

[Unbeatable]

Don't know if this is already covered somewhere, just saw it...

SWITZERLAND REVISES 1934 BANKING ACT TO ALLOW BAIL-IN DEPOSIT CONFISCATIONS!

The Swiss Financial Market Supervisory Authority (FINMA) has quietly joined the growing parade of western nations who have quietly re-written banking laws to allow depositor bail-ins upon the next banking crisis.
If Switzerland, the once ultimate safe haven for banking deposits across the world is preparing to confiscate depositors funds, there truly is no protection anywhere other than physical gold and silver in your own possession!

In the event that a bank is failing or where its capitalization is no longer adequate, the Swiss Financial Market Supervisory Authority (“FINMA”) may take measures to improve such bank’s financial viability rather than liquidating it. “Loss absorption” and “bail-in” are important instruments to support any such measures.

http://silverdoctors.com/switzerlan...g-act-to-allow-bail-in-deposit-confiscations/

 

[DCFusor]

I'm wondering if the slam down in gold, obviously by people who can afford to take a loss, was intended to prevent a slow or fast bank run they fear, by seeming to take away PM's "safe haven" status right around the time we are also hearing of "bail-ins" and such. I rarely link to my own site here, but it's too much to type again right now, so here's the rest of my take on it.
http://www.coultersmithing.com/forums/viewtopic.php?f=51&p=4397#p4397

 

[pmbug]

It's quite possible the bail-in/"banks aren't safe" message is responsible for the purported runs on physical gold in the GLD, COMEX and LBMA systems (that are also speculated as motivations for the gold smash).

I must say though, that if this was the motivation, it's failing spectacularly as physical is flying off shelves everywhere around the world right now.

 

[pmbug]

Event horizon getting nearer?

...
In a speech titled "Regulating Large Financial Institutions" Stein [Fed governor Jeremy Stein] made something very clear: if and when a TBTF fails, and since this time is not different, and a failure is only a matter of time, depositors will lose everything (courtesy of some $300 trillion in gross unnetted liabilities which once there is a counterparty chain failure, suddenly become very much net and immediately marginable - a drain of cash), which now that Cyprus is the template, is to be expected. Not only that but Stein makes it all too clear that part of the Dodd-Frank resolution authority guidelines, a bailout is no longer an option.

Perhaps more to the point for TBTF, if a SIFI does fail I have little doubt that private investors will in fact bear the losses--even if this leads to an outcome that is messier and more costly to society than we would ideally like. Dodd-Frank is very clear in saying that the Federal Reserve and other regulators cannot use their emergency authorities to bail out an individual failing institution. And as a member of the Board, I am committed to following both the letter and the spirit of the law.

...

http://www.zerohedge.com/news/2013-...n-tbtf-bank-fails-depositors-will-be-cyprused

 

[pmbug]

Deposits of over €100,000 are likely to be hit in the event of future European bank collapses, according to a proposal put forward by the Irish presidency of the European Council ahead of a key meeting of finance ministers next week.

Discussions on the controversial bank resolution regime, which is likely to see savers with deposits over €100,000 “bailed in” as part of future bank wind-downs, are due to intensify this week in Brussels, ahead of Tuesday’s meeting, which will be chaired by Minister for Finance, Michael Noonan.
...

http://www.irishtimes.com/business/...sits-of-over-100-000-may-be-at-risk-1.1384295

 

[ancona]

PMBug,
My good friend for many years lives in Wales and let me know that EVERYONE from Scotland, Ireland, Wales and Great Britain is scared shitless about their bank accounts. My friend owns his own auto customization shop and does quite a lot of work through the course of a year. In addition, many of the jobs he does requires up-front payments for expensive parts, motors, etc. and so he keeps a large amount of operating capital in the bank. His plan is to remove as much as he can, keep it in a "safe place" so that when the seizures happen, he will not be wiped out like every single small business in Cyprus was.

I cannot imagine that happening here, because the entire country woulf burn down. There would be bankers hanging from poles like apples on a tree at the end of a good summer.

He also said that Britain is considering sliding in some new bank regulations such as maximum allowable cash in any one transaction and maximum allowable withdraw at any one time or within a specific time period. These are real time events shaping up across the pond, so I suppose it's fair warning to us.

 

[pmbug]

... Britain is considering sliding in some new bank regulations such as maximum allowable cash in any one transaction and maximum allowable withdraw at any one time or within a specific time period. ...

This is already here effectively (not literally). Cash transactions over 10K requiring filing paperwork for the overlords. Banks won't let you withdraw more than a few K in cash on any given day.

 

[mike]

Most of us here grew up believing that our money was simply sitting in the bank

Hmmmm... it makes you wonder why the government-monopolized school system doesn't teach banking basics, or that there was a time when there was no personal federal income tax.

 

[mike]

Deposits of over €100,000...

That's what they say to get the support of the 99% who have no savings. Then they rape all deposits below 100K too.

 

[DoChenRollingBearing]

...

Having some genuine FIAT$ / CA$H at home (or even tucked away in the Peru's of the world if you feel it is safe) is not a bad idea either.

As long as the bad guys don't show up...

:doodoo: :doodoo:

 

[mmerlinn]

...

Having some genuine FIAT$ / CA$H at home (or even tucked away in the Peru's of the world if you feel it is safe) is not a bad idea either.

As long as the bad guys don't show up...

:doodoo: :doodoo:

Hmmm, I think I would rather risk the bad guys showing up than allow the fraudsters (Bernie et alia) to rob me blind the easy way.

 

[ancona]

If you can't hold it or see it, then taking it from you will be far easier.

 

[smokey57]

Cash eventually will be outlawed for certain transactions and then altogether. Weve digitized ourselves to poverty. No coins, no dollars. Just digits.. and all tracked . For good of course.

Carry on comrades!

 

[pmbug]

More on the same theme:

http://www.zerohedge.com/contributed/2013-05-15/no-bank-deposits-will-be-spared-confiscation

 

[HCA1961]

Holy hell!
What's a man to do???
(Other than stockpile physical metals.)

 

[pmbug]

Well, let's summarize:

Don't leave too much of your money in the bank. Bail-ins are the new normal.

Don't leave too much of your money in custodial accounts at a brokerage. Wall Street can rob you blind without legal repercussion apparently (MF Global, et. al).

Don't leave too much of your money in bubble markets (equities, bonds, real estate). High risk pending central banker whims.

 

[Aubuy]

Well, let's summarize:

Don't leave too much of your money in the bank. Bail-ins are the new normal.

Don't leave too much of your money in custodial accounts at a brokerage. Wall Street can rob you blind without legal repercussion apparently (MF Global, et. al).

Don't leave too much of your money in bubble markets (equities, bonds, real estate). High risk pending central banker whims.

Continuing that train of thought:

It is probably safer if you owe a bank rather than having a bank owe you so some debt can be good, particularly if never have to pay it back.

If you move your PM's don't use airport baggage claim.

Don't mess with the IRS. :judge:

 

[pmbug]

Looks like it's not just FDIC insured deposits that are going to get Cyprused in the great bail-in:

A portion of the $2.6 trillion money market fund industry would be required to fundamentally change how it prices its shares under proposals issued by U.S. regulators on Wednesday to reduce the risk of abrupt withdrawals.

But the Securities and Exchange Commission plan was not as strict as some market players feared and included an industry-favored provision for funds to charge withdrawal fees and delay return of funds to customers during times of financial distress.

For more than a year the SEC has been debating whether changes made in 2010 were enough to avoid a repeat of a run on money market funds seen at the height of the financial crisis.

The additional reforms proposed on Wednesday did not go as far as a draft proposal floated last year by then-SEC Chair Mary Schapiro, who left in December.

The fund industry had warned that further major reforms could kill investor interest in money market funds.

In a compromise move, the SEC's new plan mostly focuses on prime funds for institutional investors, which are seen as more prone to runs because those investors are more sophisticated and more likely to pull large blocks of money first in a panic.

The SEC estimated that institutional funds represent 37 percent of the market with $1 trillion in assets.

The SEC's plan calls for two alternative proposals that it said could be adopted alone or in combination.

The first piece would require prime funds used by institutional investors to transition from a stable, $1 per share, to a floating net asset value (NAV).

That reform is a direct response to what happened in 2008 when the Reserve Primary Fund, one of the largest money funds, suffered losses on Lehman Brothers debt and could not maintain its $1 per share price, known as "breaking the buck."

That ignited a run by investors across the money fund industry, cutting off a major source of overnight funding for many corporations.

The SEC said that retail and government funds, which are not considered to be at the same risk for runs, would not have to move to a floating NAV. Retail funds are defined as those that limit shareholder redemptions to $1 million per day.

Government funds would be limited to Treasuries, but the SEC said that most funds featuring tax-exempt debt sold by state and local governments would qualify as retail funds.

The industry has long fought against moving away from a stable share price, which it says is appealing to investors looking for a safe product.

The second proposal would give fund boards for institutional and retail funds the authority to impose so-called "liquidity fees and redemption gates" during times of stress.

That would give funds the power to stop an outflow of investor money, an idea that the SEC's two Republican commissioners last year said they might be able to support.

Schapiro in a statement applauded the movement on a proposal, but said, "I hope the Commission will remain open to meaningful reform of the entire sector and not just institutional prime funds."

The five commissioners voted unanimously on Wednesday to put the plan out for 90 days of public comment.
...

More: http://www.reuters.com/article/2013/06/05/us-sec-moneyfunds-idUSBRE9540UN20130605

 

[Aubuy]

It is interesting that money is becoming something that you can no longer own, it's more like something that has been loaned to you by the central banks, and if they need it back you have to return it.

 

[DCFusor]

I believe I saw in this that it won't affect all MM funds, like for example the one my cash is held in for my trading acct at TD Ameritrade. Anyone know for certain?

 

[pmbug]

Don't know for sure, but I would guess that money is pooled into one of the "prime funds for institutional investors" mentioned in the article. If you contact TD Ameritrade and ask them, please do let us know what they say...

 

[pmbug]

The Fed recently made some noise about increasing bank reserve requirements to avoid a potential bail in:

Federal Reserve Governor Daniel Tarullo ... at a Washington conference on how to handle failing banks. ...

Tarullo spoke at the Fed-sponsored conference as regulators weigh how to avert a repeat of the taxpayer-backed bailouts during the 2008 credit crisis. The Dodd-Frank Act requires large lenders to create living wills to describe how they could be wound down in a bankruptcy. If that doesn’t work, the Federal Deposit Insurance Corp. can step in, liquidate the bank and force losses on shareholders and creditors.

...

Tarullo said that if creditors and counterparties don’t believe the FDIC can successfully manage a resolution, they may misprice risk by assuming a bailout will result.

“If investors and other market actors think the prospects for orderly resolution seem low, they may assume the firm will be rescued by the government, and any moral hazard present in these markets will continue,” Tarullo said in prepared remarks.

...

One critical component, regulators say, is having enough long-term unsecured debt to convert into equity to help absorb losses and keep a distressed bank running until the firm could be sold or dismantled, known as a “bail-in.”
...

http://www.bloomberg.com/news/2013-...-down-plan-so-creditors-don-t-shun-banks.html

A few details on the new Fed requirements:

http://www.huffingtonpost.com/2013/10/24/federal-reserve-liquidity_n_4158388.html

 

[Aubuy]

The Fed recently made some noise about increasing bank reserve requirements to avoid a potential bail in:

http://www.bloomberg.com/news/2013-...-down-plan-so-creditors-don-t-shun-banks.html

A few details on the new Fed requirements:

http://www.huffingtonpost.com/2013/10/24/federal-reserve-liquidity_n_4158388.html

Here it comes. Dodd Frank, the law of unintended, or in this case intended consequences. My bank just notified me that if you make more than 6 transfers out of a savings account in the same month, that the account will be closed and converted to a checking account. I wonder at what point they will just say you can't take your money out of a savings account or a checking account. :shrug:

 

[pmbug]

The bank bail-in rumble is growing louder. After the events in Cyprus, a small country and potentially meaningless in the eyes of most people, it seems that bail-in idea has spread like a virus across the Western world.

Only in the last week, we saw the following developments:

• Slovenian parliament has approved bank bail-in rules. (source)
• The leader of the Eurogroup Working Group (Thomas Wieser) revealed that the eurozone should introduce bank bail-in rules from 2016, as reported by the German Der Spiegel. (source)
• UK based Co-operative Bank announced a bondholder bail-in rescue plan. (source)

All these events come right after the IMF super tax proposal of 10% on savings accounts of households with a positive net worth in Europe (reported on this site) earlier this month.
...

More: http://goldsilverworlds.com/money-currency/closer-look-at-bank-bail-ins-black-hole-of-our-system/

 

[DCFusor]

The savings account transaction rate limit has been around for as long as I can remember - a long time.

The idea was - if you want a checking account, well, have one of those instead. The justification was, well, in a saving's account, the bank needs stability of that as collateral to make money to pay you the interest on it, but has to hold the cash in-hand for checking, however they funge the books.
That one's been around 50+ years I know of, which is why I have both sorts of account, though I keep my FRN's low in all of those - just enough for emergency and daily bread use, a couple months tops.

Liquidity has some value. Lo, these many years back, I was, as always, self-insured, and you don't want to be unliquid if you need to pay. So when I built this building I'm sitting in (well, had it built, then finished it) - I put up the rest of my land, about $175k worth at the time, against a 3 year 26k loan. Even with the overabundance of collateral, that loan took 2.5 months to come through - and the building was done before the money got here - I just didn't want my reserves down too low even for an instant (what good is insurance that can't pay right now?). Of course, I paid that sucker off in a few months - I'm anti-debt - and so am still considered a deadbeat by the bank, since they didn't get to collect their big interest (7%) at a time when the fed had already depressed interest rates considerably (I think mortgages were a lot less at the time, giving me good reason to pay this off quickly).

 

[pmbug]

...
A major conference on the future of banking yesterday heard contributions on a European banking union which is being negotiated by Eurozone finance ministers. One of the aspects of that union will be a 'bail-in' of deposits when banks fail in the future. Michael Noonan, Ireland’s Minister for Finance confirmed yesterday that bail-ins or deposit confiscation will be used.

The toolkit underpinning the Single Resolution Mechanism is provided for in the bank recovery and resolution proposal (BRR) which was agreed last June in Council under the Irish Presidency. The proposal provides a common framework of rules and powers to help EU countries manage arrangements to deal with failing banks at national level as well as cross-border banks, whilst preserving essential bank operations and minimising taxpayers' exposure to losses.

One of the main pillars to the BRR framework to facilitate a range of actions by authorities are “resolution tools”. Noonan confirmed yesterday that resolution tools include the sale of business, bridge bank and asset separation tools and also the use of bailins.
...

http://www.goldcore.com/Bail-Ins_An...med_At_Future_of_Banking_in_Europe_Conference

 

[pmbug]

That graph isn't entirely accurate. For instance, it shows Canada as a "safe" place when they also have publicized a risk of bail-ins.

 

[bushi]

Truth to be told, this while "bail-ins" hoopla, isn't ANYTHING new. It only gets publicity today. But in fact, depositors are NOT depositors, they are unsecured creditors of the bank, as soon as you put anything into "your account".
How else you think they could account for fractional reserve banking, and/or lending indeed - when was the last time, that you have seen your account balance decreased, because the bank has made a loan with "your" deposit money?

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