Archive for month: February, 2015

Hurrah G20

What are the G20 talking about these days?

Have any of you guys actually heard the latest buzzword, the Bail-in Regime? “ALACGSIBR” or the “Adequacy of Loss-Absorbing Capacity of Global Systemically Important Banks in Resolution” agreement is the title to a recent decision of the G20. Is this title a diversion of “a group of governments that are trying very hard to conceal the purpose of some especially nefarious agreement that they’ve just colluded on.”? [1]

The idea is essentially that in the event of an emergency or bank failure, the bank is allowed to use unsecured depositor’s monies (anything over 100,000) as regulatory capital.

How is that fair?

This keeps the taxpayer happy, as the pocket they are removing funds from is someone else’s, the bankers are thrilled and the G20 countries are “wringing their hands” [2] as they strike with another great vision of “OPM” (also known as “Other People’s Money”).

As Europe goes to hell in a hand basket they bask in their “collective epiphany” [3] on solving systemic bank failure.

Here’s what bothers me.

The idea of investing in equities, complex derivatives or the like, seems somehow less risky, in view of these new ideas regarding potential global bank failure when compared to just putting our money in an interest bearing savings account. [4]

That low risk, feeling of safety that could be had from having your savings safely put away in a bank account is a thing of the past. Theft is now legal.

Depositors are viewed as a liability to the bank because anything over 100,000 is unsecured.

What is perceived as being “low risk and high liquidity” offers very little in return, yet is climbing to the top of the risk ladder. [5]

To be fair though, it must be stated that “In some jurisdictions, the banks must give something back, such as shares in the bank (which may or may not have a saleable value). In addition, whilst the individual bank can take as much as it wants, it is “encouraged” to place a floor on the confiscation, for example, in Europe, €100,000. And this would be “hoped” to be a “one-time-only” confiscation. However, in each country, should the banks later decide that the first confiscation was insufficient, they could make as many further confiscations as they see fit and could lower the floor each time. If your account is “insured” by your government, it would be well to bear in mind that confiscation is not the same as a bank crash. In confiscation, you have not technically “lost” your deposit; the bank has traded it for a piece of paper that says you now own something other than your money—shares in the bank (which, again, may or may not be saleable).” [6]

Cyprus was a test, a virus that could prove a pandemic in OPM’s. Once the banking emergency has been created, accounts can be confiscated.

The outbreak effectively began a long time ago, but nobody really took notice. Suffice it to look at pages 145 of Canada’s Economic Action Plan 2013:

“The [Canadian] Government proposes to implement a “bail-in” regime for systemically important banks. This regime will be designed to ensure that, in the unlikely event that a systemically important bank depletes its capital, the bank can be recapitalized and returned to viability through the very rapid conversion of certain bank liabilities into regulatory capital. This will reduce risks for taxpayers. The Government will consult stakeholders on how best to implement a bail-in regime in Canada. Implementation timelines will allow for a smooth transition for affected institutions, investors and other market participants. Systemically important banks will continue to be subject to existing risk management requirements, including enhanced supervision and recovery and resolution plans.” [7]

I’m not sure how I’m supposed to feel better right this minute.

If the G20 has agreed on a bail-in regime, then what will happen the next time the banks decide on some high risk and irresponsible investment, such as bundled mortgages, for instance?

Will this constitute an emergency?

While it is true that I’m an artist, not a politician, I do believe in balance and honour.

Am I missing something here?

P.S. All joking aside, it might be best to avoid fiat currencies and instead invest in art.

I can help you with that!

 

  1. http://www.internationalman.com/articles/adequacy-of-loss-absorbing-capacity-of-global-systemically-important-banks
  2. http://www.internationalman.com/articles/adequacy-of-loss-absorbing-capacity-of-global-systemically-important-banks
  3. http://www.internationalman.com/articles/adequacy-of-loss-absorbing-capacity-of-global-systemically-important-banks
  4. http://boombustblog.com/reggie-in-the-news/item/9045-eu-bank-depositors-your-mattress-is-starting-to-look-awfully-attractive-bank-risk-reward-compensation#comment-10891
  5. http://boombustblog.com/reggie-in-the-news/item/9045-eu-bank-depositors-your-mattress-is-starting-to-look-awfully-attractive-bank-risk-reward-compensation#comment-10891
  6. http://www.internationalman.com/articles/adequacy-of-loss-absorbing-capacity-of-global-systemically-important-banks
  7. http://www.budget.gc.ca/2013/doc/plan/budget2013-eng.pdf

By Boky & Blake

 

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