What is a Bank Bail in Vs a Bank Bail OUT
In one of my earlier blog posts in October 2013 I reported on International plans by Governments to setup laws to allow Banks to confiscate depositors funds in case of another GFC.
Instead of Governments Bailing Out the Banks – depositors will be those at risk in future if there is another financial meltdown that is called “Bail IN”
It is now looking like the latest G20 meeting in Brisbane has now allowed the Australian Government to make legal this confiscation by agreeing at G20 to legislate Bail IN laws.
Here are a few facts that might amaze you!
The Department of the Treasury’s submission to the Financial System Inquiry 3 April 2014
“158. Part of the G20’s policy response to the problem of ‘too big to fail’ is to reduce the moral hazard and fiscal costs through a bail-in regime, which includes a framework for loss absorbency. Bail-in involves allowing the Government to write down the value of bank debt or converting debt securities into equity when the bank fails.
159. In theory, a credible bail-in regime would directly address the moral hazard and efficiency issues caused by too big to fail.
163. ….A bail-in policy would generate efficiency gains by ensuring that lenders rather than taxpayers met the cost arising from the failure of a bank to meet its obligations.”
In this case the lenders are the depositors – you and me!
Reserve Bank of Australia Speech by Glenn Stevens RBA Governor to the Federal Reserve Bank of San Francisco’s Symposium on Asian Banking and Finance San Francisco – 10 June 2014
“Addressing the problem of ‘too big to fail’ entities, a key area of work this year is to put forward a proposal for ‘gone-concern loss-absorbing capacity’, or ‘GLAC’, for global systemically important banks ………….Such entities are sufficiently large and interconnected that an uncontrolled failure could easily cause systemic disruption.
Therefore, it is argued that further loss-absorbing capacity is needed, to be called on at the point of non‑viability, so as to allow vital functions to continue and non-critical operations to be wound down in a controlled way. This limits adverse spillovers to the system and the economy. Generally, this loss-absorbing capacity is to come from a ‘bail-in’ of certain classes of private creditors, so as to avoid calling on the public purse for a ‘bail-out.”
25/10/2014 Bank of England targets end of bank bail-out era – Daily Telegraph
“Global regulators are expected to make further progress towards locking in the “bail-in” regime at next month’s G20 summit in Brisbane,….The new regime comes into place from January 2015.”
Strengthening APRA’s Crisis Management Powers Paper- (APRA is Australian Prudential Regulation Authority) 2012
“Financial Stability Board Key Attributes set out the types of resolution powers that jurisdictions should have available for dealing with financial institution distress. These include the need for robust statutory powers to: … suspend or cancel financial obligations…facilitate bail-in.”
“On November 16 2014, leaders of the G20 Group of Nations – the 20 largest economies – made an important decision. The world’s megabanks now have official permission to pledge depositor accounts as collateral to make leveraged derivative bets. And if they lose a bet, the counterparty to the contract has first dibs on your money. The governments of these 20 countries are now supposed to put these arrangements into law……..Thus, when you deposit money in a bank now, you’re taking the same risk as someone buying a stock”
“The G20 has also officially declared that derivatives – the toxic contracts Warren Buffett calls “financial weapons of mass destruction” – are secured debts. Since your bank deposits are now only unsecured debt that the bank has pledged to a secured creditor, guess who gets your money if the bet goes the wrong way for the bank- not you!”
December 16, 2014 | Greg Hunter Report
“Theoretically, we are protected by deposit insurance up to $250,000 in the U.S. and 100,000 euros in Europe. The FDIC fund has $46 billion, the last time I looked, to cover $4.5 trillion worth of deposits.
There is also $280 trillion worth of derivatives that the five biggest banks in the U.S. are exposed to, and under the bankruptcy reform act of 2005, derivatives go first. So, they are basically exempt from these new rules. They just snatch the collateral. So, if you had a big derivatives bust that brought down JP Morgan or Bank of America, there is no way there is going to be collateral left for the FDIC or for the secured depositors.”
I don’t know if anyone has politely pointed out to the politicians that Taxpayers are ALSO Depositors! So what they are really saying is that the Government of the day does not want to be blamed by the voters when the next GFC hits. But we all know that its the politicians who are allowing these bankers (who have no morals) to get away with theft on a grand scale!
So there might be some interesting times ahead – lets pray for Gods wisdom and understanding as we walk through these days coming. Alan
May 2016 Update this website explains Bail in very well www.global-precious-metals.com – Check out your country position on “Bail in”