Tag Archives: Cyprus bank levy

Federal Reserve governor: If large financial institutions fail, there'll be no bailout of depositors

In March 2013, something quite extraordinary happened in the Mediterranean island country of Cyprus. In return for a loan from the Eurozone to bail out the heavily-indebted country and its banking system, as much as 80% of “large” (over €100,000) bank deposits in the country’s largest bank, Cyprus Popular Bank, would be confiscated.
At the time, I warned about contagion effects from Cyprus. Sure enough, talk of a wealth tax on bank deposits immediately began in New Zealand and Spain, followed by the Eurozone chair saying the personal bank accounts of other countries can also be raided.
Now, it looks like the Cyprus contagion has reached the United States.
Before you read further, please familiarize yourself with the following:

  • The initials TBTF stand for “too big to fail”.
  • The initials FDIC stand for the Federal Deposit Insurance Corporation, a United States government corporation operating as an independent agency created by the Banking Act of 1933. As of January 2013, FDIC provides deposit insurance guaranteeing the safety of a depositor’s accounts in member banks up to $250,000 for each deposit ownership category in each insured bank. As of September 30, 2012, the FDIC insured deposits at 7,181 institutions. The FDIC also examines and supervises certain financial institutions for safety and soundness, performs certain consumer-protection functions, and manages banks in receiverships (failed banks). The FDIC receives no Congressional appropriations – it is funded by premiums that banks and thrift institutions pay for deposit insurance coverage and from earnings on investments in U.S. Treasury securities. The FDIC does not provide deposit insurance for credit unions, which are insured by the National Credit Union Administration (NCUA).

Jeremy Stein sworn inJeremy Stein (r) sworn in as a new member of the Federal Reserve Board, by Federal Reserve chairman Ben Bernanke May 30, 2012.

On April 17, 2013, at a conference sponsored by the International Monetary Fund in Washington, D.C., Harvard University economics professor Jeremy C. Stein, a member of the presidentially-appointed Federal Reserve Board of Governors, said something that should send chills down the spine of anyone who has money in U.S. banks and other financial institutions, and who is counting on the FDIC or the federal government to insure their money.

In his speech on “Regulating Large Financial Institutions,” Stein said:

“Where do we stand with respect to fixing the problem of ‘too big to fail’ (TBTF)? Are we making satisfactory progress, or it is time to think about further measures?

I should note at the outset that solving the TBTF problem has two distinct aspects. First, and most obviously, one goal is to get to the point where all market participants understand with certainty that if a large SIFI were to fail, the losses would fall on its shareholders and creditors, and taxpayers would have no exposure. However, this is only a necessary condition for success, but not a sufficient one. A second aim is that the failure of a SIFI must not impose significant spillovers on the rest of the financial system, in the form of contagion effects, fire sales, widespread credit crunches, and the like. Clearly, these two goals are closely related. If policy does a better job of mitigating spillovers, it becomes more credible to claim that a SIFI will be allowed to fail without government bailout.
[…] if […] a SIFI does fail, the orderly liquidation authority (OLA) in Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act now offers a mechanism for recapitalizing and restructuring the institution by imposing losses on shareholders and creditors. In the interests of brevity, I won’t go into a lot of detail about OLA. But my Board colleague Jay Powell talked in depth about this topic in a speech last month, and I would just register my broad agreement with his conclusion–namely that the Federal Deposit Insurance Corporation’s (FDIC’s) so-called “single point of entry” approach to resolution is a promising one.2

2 Powell, Jerome H. (2013). “Ending ‘Too Big to Fail’,” speech delivered at the Institute of International Bankers 2013 Washington Conference, Washington, D.C., March 4

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. […]”
Read the rest of Stein’s speech here.
Tyler Durden of ZeroHedge brings home the reality of Stein’s words with this graphic below:
FDIC illusion
~Eowyn

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Who had insider knowledge of the impending Cyprus bank confiscation

Throughout the week of “negotiations” between the Eurozone Powers that Be and the government of Cyprus, on how much of Cypriots’ privately-owned bank deposits would be confiscated looted in exchange for a €10 billion ($13 billion) loan to bail out the heavily indebted country, I was wondering if any of Cypriot elite’s money would be among those “large” (€100,000 or more) bank deposits that would be “levied.”
At the time, I said to FOTM’s joandarc that I very much doubted that the elites would lose their money. I also said that the Cyprus Bank Robbery is setting a terrible precedent and indeed, the contagion already had seeped to other countries (Spain and New Zealand), with the Eurozone chair declaring that the personal bank accounts of other countries can also be raided. I thought out loud that being a small island country, Cyprus probably was chosen by TPTB to be the guinea pig because its small population of a million people are unlikely to mount much of a protest, investigation, or resistance.
Sadly, my cynicism proved to be warranted.
We now have substantial credible evidence that the elite had insider knowledge and so withdrew their money out of Cypriot banks before the the Kabuki “negotiations” had even begun. In the words of Tyler Durden, “the Cyprus deposit confiscation was known by virtually everyone on the ground days and weeks in advance.”
In February, there was a massive surge in Cyprus deposit outflows. Italian media said €4.5 billion ($5.9 billion) left the island in the week before the crisis.
So who had insider knowledge?

The face of corruption: Cypriot president Nikos Anastasiades

1. Cypriot President Nikos Anastasiades:

  • Anastasides had warned his close friends to move their money abroad before the financial crisis engulfed the country. The respected Cypriot newspaper Filelftheros made the allegation which was picked up by German media. The Cyprus newspaper did not say how much money was moved abroad but quoted sources saying Anastasiades “knew about the possible closure of the banks” and tipped off close friends who were able to move vast sums abroad.

2. The Russians: Cypriot banks were a favorite of Russian nationals, and even they knew and pulled out their money.
3. 132 companies and individuals withdrew their deposits in the two weeks from March 1 to March 15, and transferred them to banks outside Cyprus. Among them is the company Loutsios & Sons, which transferred €21 million to a UK bank. The company’s owner is alleged to have family ties with President Anastasiadis.
The following images are a list of the 132 companies and individuals. (Note: The first vertical column lists the names of companies and individuals; the 2nd, 3rd and 4th columns record the amounts withdrawn in various currencies; the 5th and last column refers to the date of transfer, i.e., the date when the money withdrawal was made.)

Click image to enlarge

Cyprus1Cyprus2Cyprus3Cyprus4
Meanwhile, the latest news is that the Cyprus government’s parliamentary committee tasked with tracking down the leaks, has suspended its probe into who withdrew money early.
Sources: Daily Mail, March 22, 2013; ZeroHedge, April 1, 2013; Sigma.
~Eowyn

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Obama takes first shot at retirement IRAs

It’s long been speculated, at least since 2010, that Obama will go after our pensions and other retirement monies such as Individual Retirement Accounts (IRA). (See my post of Jan. 9, 2010, on Obama’s trial balloon to convert 401(k)s and IRAs into annuities, “Obama, Hands Off My Retirement $.”)
Now that the Eurozone Powers That Be have succeeded in looting up to 80% of “large” bank deposits in Cyprus, the POS is firing his first post-Cyprus shot aimed at our retirement funds. (See also my posts: “U.S. fed-state govts eliminating private pensions & retirement accounts,” Nov. 27, 2012; and “Obama administration taps into federal retirement funds,” May 24, 2011.)
Typical of his and the Left’s modus operandi, the shot is aimed at “wealthy” IRAs, defined as IRAs worth $3 million or more. This, of course, ensures that most Americans — who don’t have large sums of money in IRAs or even have IRAs at all — will just yawn “Ho hum, who cares?” and sink back into their complacency, thinking Obama’s proposal to limit how much we can sock away in IRAs doesn’t really concern them.
Just wait till he comes after you — as he certainly will. Remember this warning by Thomas Jefferson:
big-government
Bernie Becker reports for The Hill that Obama is expected to release a proposed budget this Wednesday that will limit how much Americans can save in IRAs and other retirement accounts.
An unnamed “senior administration official” claims the proposal would save around $9 billion over a decade, while also bringing more “fairness” to the tax code because “the wealthy” can currently “accumulate many millions of dollars in these accounts, substantially more than is needed to fund reasonable levels of retirement saving.”
Under Obama’s proposed plan, a taxpayer’s tax-deferred retirement account, like an IRA, could not finance more than $205,000 per year of retirement – or right around $3 million, in today’s dollars.
The interest generated in IRAs are not taxable, but when the account owner begins withdrawing from his/her IRA, those withdrawals are taxed as income.
~Eowyn

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How bankrupt govt steals your money in 8 steps

big-government
As news on the Great Cyprus Bank Robbery keep getting worse, the latest being the country’s corrupt finance minister Michael Sarris saying that as much as 80% of “large” bank deposits can be confiscated, Americans should be on the alert to copycat moves by our feral government and bankers. All the more because the American Left are applauding the theft of Cypriots’ bank savings.
Tyler Durden of ZeroHedge warns us that when bankrupt insolvent governments “run out of fingers to plug the dikes,” history shows that they fall back on a very limited playbook.
Simon Black of Sovereign Man blog has enumerated 8 steps in the playbook of bankrupt governments:
1. Direct confiscation: As Cyprus showed us, bankrupt governments are quite happy to plunder people’s bank accounts, especially if it’s a wealthy minority. Aside from bank levies, though, this also includes things like seizing retirement accounts (Argentina), increases in civil asset forfeiture (United States), and gold criminalization.
big govt
2. Taxes: Just another form of confiscation, taxation plunders the hard work and talent of the citizenry. But thanks to decades of brainwashing, it’s more socially acceptable. We’ve come to regard taxes as a ‘necessary evil,’ not realizing that the country existed for decades, even centuries, without an income tax. Yet when bankrupt governments get desperate enough, they begin imposing new taxes… primarily WEALTH taxes (Argentina) or windfall profits taxes (United States in the 1970s).
3. Inflation: This is indirect confiscation– the slow, gradual plundering of people’s savings. Again, governments have been quite successful at inculcating a belief that inflation is also a necessary evil. They’re also adept at fooling people with phony inflation statistics.
4. Capital Controls: Governments can, do, and will restrict the free-flow of capital across borders. They’ll prevent you from moving your own money to a safer jurisdiction, forcing you to keep your hard earned savings at home where it can be plundered and devalued. We’re seeing this everywhere in the developed world… from withdrawal limits in Europe to cash-sniffing dogs at border checkpoints. And it certainly doesn’t help when everyone from the IMF to Nobel laureate Paul Krugman argue in favor of Capital Controls.
5. Wage and Price controls: When even the lowest common denominator in society realizes that prices are getting higher, governments step in and ‘fix’ things by imposing price controls. Occasionally this also includes wage controls… though wage increases tend to be vastly outpaced by price increases. Of course, as any basic economics textbook can illustrate, price controls never work and typically lead to shortages and massive misallocations.
6. Wage and Price controls– on STEROIDS: When the first round of price controls don’t work, the next step is to impose severe penalties for not abiding by the terms. In the days of Diocletian’s Edict on Prices in the 4th century AD, any Roman caught violating the price controls was put to death. In post-revolutionary France, shopkeepers who violated the “Law of Maximum” were fleeced of their private property… and a national spy system was put into place to enforce the measures.
7. Increased regulation: Despite being completely broke, governments will dramatically expand their ranks in a last desperate gasp to envelop the problem in sheer size. In the early 1920s, for example, the number of bureaucratic officials in the German Weimar Republic increased 242%, even though the country was flat broke from its World War I reparation payments and hyperinflation episode. The increase in both regulations and government officials criminalizes and/or controls almost every aspect of our existence… from what we can/cannot put in our bodies to how we are allowed to raise our own children.
8. War and National Emergency: When all else fails, just invade another country. Pick a fight. Keep people distracted by working them into a frenzy over men in caves… or some completely irrelevant island.
~Eowyn

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Cyprus now says 80% of "large" bank deposits can be confiscated

From FoxNews (via Phoenix Capital Research) comes the latest alarming news from Cyprus that the government has changed its mind again. It is now saying that the levy confiscation or looting of “large” (over €100,000) bank deposits can be more than the 30%-40% that had been announced just five days ago on March 25, 2013.
In a television interview with state broadcaster RIC a day after the 30% “levy” announcement, Cyprus Finance Minister Michael Sarris said large deposit holders at Cyprus Popular Bank, the island country’s biggest lender that is slated to be shut down, could face losses of as much as 80% on their deposits.
Sarris also indicated it could take “years” before those depositors see any of their money returned. Even worse, the finance minister admitted that “Realistically, very little will be returned.”
First, the Eurozone said they wanted to “levy” 10% on “large” deposits. Then the Cyprus government negotiated a rate of 30%. Now, they changed their tune again — the rate of looting “can be” as much as 80%. In effect, this is not just a wealth tax, it’s outright robbery.

SarrisCyprus Finance Minister Michael Sarris, age 66

I looked up Cyprus Finance Minister Michael Sarris (Ph.D. in economics from Wayne State University) on Wikipedia, and found this fascinating piece of information on him:
“At 15th of October in 2011, he was accused by the North State of Cyprus for some type of sexual orgy including a minor. The North State of Cyprus has previously raised similar allegations.”
If you need a human face for the Cyprus bank robbery, here’s an account in the Sydney Morning Herald (via ZeroHedge) of an Australian expat in Cyprus, John Demetriou:

”Very bad, very, very bad,” says 65-year-old John Demetriou, rubbing tears from his lined face with thick fingers. ”I lost all my money.”

John now lives in the picturesque fishing village of Liopetri on Cyprus’ south coast. But for 35 years he lived at Bondi Junction and worked days, nights and weekends in Sydney markets selling jewellery and imitation jewellery.

He had left Cyprus in the early 1970s at the height of its war with Turkey, taking his wife and young children to safety in Australia. He built a life from nothing and, gradually, a substantial nest egg. He retired to Cyprus in 2007 with about $1 million, his life savings.

He planned to spend it on his grandchildren – some of whom live in Cyprus – putting them through university and setting them up. There would be medical bills; he has a heart condition. The interest was paying for a comfortable retirement, and trips back to Australia. He also toyed with the idea of buying a boat.

He wanted to leave any big purchases a few years, to be sure this was where he would spend his retirement. There was no hurry. But now it is all gone. ”If I made the decision to stay, I was going to build a house,” John says. ”Unfortunately I didn’t make the decision yet. I went to sleep Friday as a rich man. I woke up a poor man.”

His money was all in the Laiki ”Popular” Bank which was the main casualty of Cyprus’ bailout package set by the European Union. Laiki is to be dismantled. Savings of less than €100,000 are to move to the Bank of Cyprus. Anything more than that will almost certainly be wiped out as the bank is wound down, its remaining assets taken by the bank’s creditors.

Last week he heard a rumour that the bank was in trouble and went into Aiya Napa to ask his bank manager – a friend – if he should move his life savings. ”There’s no problem, nothing to worry about,” he was told.  Not so. ”I go to bed and I can’t sleep. I walk around, I have a coffee. I am thinking about my family.”

John’s tears flow. As he chokes up, his son George, who moved to Cyprus in 1990, explains. ”The whole family, we used to work at the markets. I would work at the markets on the weekend to help my parents while my mates were off having fun. Honest work in honest jobs. Now all that hard work is paying the debts of other people and the government. It’s disgusting, to be honest.”

George says he can start again – if things get worse he and his family might move back to Australia.

”But not my dad. He can’t go back to Australia. He is not allowed to fly because of his heart, and anyway where would he live? He has no house. He will have €100,000 left to live off. Soon he’s not going to have a cent to his name.”

If any American is so deluded as to think this could never happen in the US, Phoenix Capital Research (PCR) reminds us that John Corzine had stolen over $1 billion worth of client funds during MF Global’s collapse. (See “Why the Collapse of MF Global Should Frighten You,” Nov. 23, 2011.)
Corzine is not in jail and in fact remains one of the most connected financial elites in the US. Indeed, NO ONE went to jail for MF Global’s theft. (See “Jon Corzine’s Sergeant Shultz Defense,” Dec. 9, 2011.)
PCR maintains that European elites took note of the MF Global case and believed a similar idea could be foisted upon the European public during extreme times of crisis. The only difference between MF Global and Cyprus is that in the former case the funds that were stolen were invested in commodity futures and other securities, whereas in Cyprus they were personal bank savings.
See also:

~Eowyn

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Eurozone chair says personal bank accounts of other countries can also be raided

contagion
Mere days after the Eurozone had proposed to levy 10% of bank deposits in Cyprus, the governments of Spain and New Zealand already began making similar noises.
Sure enough, a day after Cyprus finalized its pact with the Devil Eurozone to confiscate 30-40% of bank deposits that are more than €100,000 ($128,630) for a €10 billion loan in return, a top Eurozone official announced that, if needed, Eurzone will raid the personal bank accounts in other financially-troubled European Union (EU) countries as well.
The Eurozone is an economic and monetary union of 17 EU member states that have adopted the euro (€) as their common currency and sole legal tender.

Eurogroup presidentEurozone Chairman Jeroen Jijsselbloem

Bruno Waterfield reports from Brussels for the UK’s The Telegraph, March 25, 2013, that ditching a three-year-old policy of protecting senior bondholders and large depositors (over €100,000) in EU banks, Jeroen Dijsselbloem, the Dutch chairman of the eurozone, told the FT and Reuters that the heavy losses inflicted on depositors in Cyprus would be the template for future banking crises across Europe.

Dijsselbloem said:
“If there is a risk in a bank, our first question should be ‘Okay, what are you in the bank going to do about that? What can you do to recapitalise yourself?’ If the bank can’t do it, then we’ll talk to the shareholders and the bondholders, we’ll ask them to contribute in recapitalising the bank, and if necessary the uninsured deposit holders.

If we want to have a healthy, sound financial sector, the only way is to say, ‘Look, there where you take on the risks, you must deal with them, and if you can’t deal with them, then you shouldn’t have taken them on.’
The consequences may be that it’s the end of story, and that is an approach that I think, now that we are out of the heat of the crisis, we should take.
We should aim at a situation where we will never need to even consider direct recapitalisation. If we have even more instruments in terms of bail-in and how far we can go on bail-in, the need for direct recap will become smaller and smaller.
I think the approach needs to be, let’s deal with the banks within the banks first, before looking at public money or any other instrument coming from the public side. Banks should basically be able to save themselves, or at least restructure or recapitalise themselves as far as possible.”
By “direct recapitalization,” Dijsselbloem means a direct bailout of a heavily-indebted and financially-insolvent EU country by the three-headed Cerberus of the EU, European Central Bank, and International Monetary Fund.
The announcement is highly significant as it signals the mothballing of the euro’s €700bn bailout fund, the European Stability Mechanism (ESM), which Spain and Ireland wants to be used to recapitalize their troubled banks.
The eurozone had been planning to roll out the ESM as a “big bazooka” in mid-2014 that could help save banks and prevent financial turmoil in countries such Spain or Italy, a development that has been delayed by German resistance.
Although last night Dijesselbloem tried to row back from his “contagion” comment, he’d already made his point to countries like Ireland and Spain that had been hoping to access the ESM in order to restructure banks without killing off their financial sector by inflicting huge losses on investors.
Meanwhile, banks are still closed (on “holiday”) in Cypriot, until Thursday. Cypriot President Nicos Anastasiades made happy talk, saying that Cyprus could now make a fresh start after having come a “breath away” from collapse. He also said there would be a criminal investigation into the crisis.
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~Eowyn

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Govt confiscates 30% of all large bank deposits in Cyprus

Govthelp
It’s now official: Governments can decide you have too much in bank deposits and, without your consent or even a vote by your elected representatives, simply confiscate steal a percentage of your savings.
Cyprus has just shown rapacious governments across the world how easily it can be done.
After a week of feverish negotiations, the government of Cyprus — a small island country in the Eastern Mediterranean Sea and a member of the European Union (EU) — finally made a deal with the Devil the grand poobahs of the Eurozone, thereby bringing an end, for now, to the financial crisis that had plunged the small country (population: about a million) into riots and chaos.
The Eurozone is an economic and monetary union of 17 EU member states that have adopted the euro (€) as their common currency and sole legal tender.
The crisis began on March 16, 2013, when the Eurozone told the people of Cyprus that as much as 10% of the deposits in their personal bank accounts would be levied confiscated, in exchange for a $13 billion (€10 billion) bail-out of their heavily indebted country to avoid bankruptcy and a banking collapse.
But the proposed levy was resoundingly rejected by the Cypriot parliament. Meanwhile, to prevent a bank run, banks in Cypriot were closed (a “bank holiday”!) and ATM withdrawals limited to €100 ($128) a day.
Jan Strupczewski and Michele Kambas report for Reuters, March 25, 2013, that mere hours before the deadline to avert a collapse of the Cypriot banking system, Cyprus President Nicos Anastasiades clinched a last-ditch deal with the three-headed money lender (EU, European Central Bank, and International Monetary Fund) in return for a €10 billion bailout.
Without a deal, Cyprus’s banking system would have collapsed and the country could have become the first to crash out of the euro currency.
Here’s the deal:

  • In return for an EU loan of €10 billion, Cyprus must raise €5.8 billion from its banking sector by:
  • Shutting down the country’s second-largest bank, the largely state-owned Popular Bank of Cyprus (PBC), also known as Laiki. Thousands of jobs at PBC will be terminated; senior bondholders in PBC will be wiped out.
  • Shifting all PBC deposits below €100,000 ($128,630) to the Bank of Cyprus (BoC) to create a “good bank.”
  • Freezing deposits of more than €100,000 in both banks (PBC and BoC), which are not guaranteed under EU law. About 30% of those deposits will be used confiscated to “resolve” PBC’s debts and recapitalize Bank of Cyprus through a deposit/equity conversion. Those uninsured deposits total €38 billion (more than half of the €68 billion total bank deposits in Cyprus). Eurogroup chairman Jeroen Dijssebloem said the raid on uninsured  depositors is expected to raise €4.2 billion.
  • No across-the-board levy or tax would be imposed on deposits in Cypriot banks, although the hit on large account holders in the two biggest banks is likely to be far greater than initially planned.

IMF chief Christine Lagarde said the agreement was “a comprehensive and credible plan” that addresses the core problem of the banking system and “provides the basis for restoring trust in the banking system, which is key to supporting growth.” Blah, blah, blah.
German Finance Minister Wolfgang Schaeuble said the Cypriot parliament would not need to vote on the new scheme, since they had already enacted a law on procedures for bank resolution. Blah, blah, blah.
Some Cypriots are wary about the deal. Georgia Xenophontos, 23, a hotel receptionist in the capital, Nicosia, sensibly asked, “How long will it last? Why should anyone believe anything this government says?”
But many in the capital appeared intent on enjoying a sunny holiday morning, drinking coffee at pavement cafes and watching camera crews filming people drawing money from bank machines.

Baa….

Flock_of_sheep
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~Eowyn

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Cyprus copycats: NZ and Spain talk wealth tax on bank deposits

Four days ago, on March 16, 2013, the people of Cyprus were told by the grand poobahs of the eurozone that as much as 10% of the deposits in their personal bank accounts would be “levied” confiscated, in exchange for a $13 billion (€10 billion) bail-out of their heavily indebted country to avoid bankruptcy and a banking collapse.
Cyprus is a small island country in the Eastern Mediterranean Sea to the east of Greece, and a member of the European Union (EU). The eurozone is an economic and monetary union of 17 EU member states that have adopted the euro (€) as their common currency and sole legal tender.
The eurozone’s levy was contingent on the approval of the Cypriot parliament. Yesterday, parliament resoundingly rejected the confiscation of Cypriots’ bank assets, which means the EU must now contemplate one of their members defaulting on its debt.
But the damage is already done. As Tyler Durden of ZeroHedge puts it, “the Rubicon has been crossed.” The idea of “wealth taxation,” that is the involuntary “levy” or confiscation of citizens’ bank assets, “is now front and center” not only in Europe, but undoubtedly in the United States as well.
Faster than you can say “Jiminy Cricket,” the governments of two other countries already are making similar levy noises.

New Zealand

Yesterday, New Zealand’s Green Party issued a press release claiming that NZ’s National Government are pushing for a Cyprus-style solution to bank failure in their country.

Bill English

Bill English


As reported by NZ’s (independent news) Scoop, NZ Deputy Prime Minister and Finance Minister Bill English is pushing for the Open Bank Resolution (OBR) under which, if a bank fails, the savings of all bank depositors would be reduced overnight to fund the bank’s bail out. In effect, small depositors would be forced to fund big bank bailouts.
Green Party Co-leader Dr Russel Norman said:
“Bill English is proposing a Cyprus-style solution for managing bank failure here in New Zealand – a solution that will see small depositors lose some of their savings to fund big bank bailouts. The Reserve Bank is in the final stages of implementing a system of managing bank failure called Open Bank Resolution. The scheme will put all bank depositors on the hook for bailing out their bank. Depositors will overnight have their savings shaved by the amount needed to keep the bank afloat. While the details are still to be finalised, nearly all depositors will see their savings reduced by the same proportions.
Bill English is wrong to assume everyday people are able to judge the soundness of their bank. Not even sophisticated investors like Merrill Lynch saw the global financial crisis coming. If he insists on pushing through this unfair scheme, small depositors can be protected ahead of time with a notified savings threshold below which their savings will be safe from any interference.
Open Bank Resolution is unprecedented in the world. Most OECD countries run deposit insurance schemes which protect people’s deposits up to a maximum ranging from $100,000 – $250,000. OBR is not in line with Australia, which protects bank deposits up to $250,000.
A deposit insurance scheme is a much simpler, well-tested alternative to Open Bank Resolution. It rewards safe banks with lower premiums and limits the cost to taxpayers of a bank failure. Deposit insurance will, however, require the Reserve Bank to oversee and regulate our banks more closely – a measure which is ultimately the best protection against bank failure.”

Spain

Luis de Guindos

Luis de Guindos


According to a report by El Paiz, yesterday (March 19, 2013), Spain’s economy minister Luis de Guindos proclaimed in the Senate that “Spanish savers should stay calm.”
But De Guindos has a peculiar way of reassuring Spanish savers because in the same breath, he assured them that bank deposits under €100,000 are “sacred,” which of course implies that deposits over €100,000 are not!
As Tyler Durden observes, it would appear Spain has changed constitutional rules to enable a so-called “moderate” levy on bank deposits,  as under previous Spanish law this was prohibited. For now, the helpful De Guindos claims the “levy” will be “not much higher than 0%” and is mainly aimed at regions in Spain that have “made no effort to collect taxes” based on new revenue expectations. Minister of Finance and Public Administration Cristobal Montoro defends the need for such a “levy” in their constitution on the basis of standardizing taxes across regions, and is preparing a proposal on the amounts to be paid.
Although the European Commission could previously argue that such a “tax” would violate the free movement of capital in Europe, Cyprus and Spain have opened the door to eventually effectively taxing bank deposits in Europe.
See also my post of March 19, 2013, “Confiscation of bank deposits: Can it happen in America?.”
~Eowyn

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