Guest Post: "Regarding Bank Bail-Ins", by James Gibson

Longtime Turdite James Gibson is author of the great book, "From West To East". He also just sent us this terrific new article which discusses the history of the Cypriot bank bail-in of 2012 and warns of future bail-ins to come.

REGARDING BANK BAIL-INS,

by James Gibson

Most TFMR subscribers probably agree with me that the current international financial system is to all intents and purposes broken, and it is being kept afloat by increasingly egregious interventions and manipulations by central banks and major money centre banks. The risk of bank bail-ins seems to be rising by the month, so I thought an article on this subject might be of interest.

This topic is close to my heart, as I live in Cyprus and personally witnessed and lived through the experience of the first officially sanctioned G20 ‘bank bail-in’ process in 2013.

It became clear to me in late 2012 that the Cypriot banking sector had dug itself a huge financial hole, well beyond the national government’s financial ability to resolve, and that bank depositors’ money was very much at risk.

At every opportunity, I tried to warn friends and acquaintances of the dangers, and urged them to reduce their Cypriot bank deposits to a minimum as soon as practical. Most people either laughed off my concerns, or their eyes glazed over with total disbelief, and/or they thought I was a certifiably crazy person.

In the end, I managed to persuade just three people to take action, which they did literally in the last few days before the official declaration of a ‘bank holiday.’ They collectively saved over $1.5 million. It would be a masterly understatement to say that that those three people, and their families, were very relieved and happy that they had managed to avoid the financial consequences of the bail-in. It is interesting that I cannot recollect even one of those people that ignored my warnings ever approaching me after the bail-in, to express regret that they had refused to heed my warning. As the old adage goes: there is nothing stranger than folk.

When the bank holiday was declared, and the final bail-in terms agreed and made known, the depositors’ reactions were pretty uniform, and understandably included a deep sense of outrage, and stunned disbelief that their bank deposits could be legally seized in such an arbitrary manner.

This sense of outrage was exacerbated by the fact that the banks had regularly been declaring healthy profits in the years leading up to the bail-in, and there was little to indicate to those unfamiliar with the financial system, that there was any cause for concern.

What follows is brief extract from my book:
FROM WEST TO EAST – The Greatest Transfer of Power and Wealth in the History of Mankind

Quote
The financial and economic crisis of 2008 resulted in many major banks requiring urgent increases in capital in order to avoid bankruptcy. In the highly stressed atmosphere of the crisis conditions existing at that time, coupled with the lack of any protocol to follow in such extraordinary circumstances, the banks in question were exceptionally provided with increased capital by their respective governments at the expense of the taxpayer.

When the crisis conditions calmed down somewhat in 2009, the G20 decided that a suitable protocol for handling future bank crises must be drawn up and agreed. In April 2009 the Financial Stability Board (FSB) was established as a successor to the Financial Stability Forum (FSF); it included all G20 countries, FSF members, and the European Commission. The FSB was based in Basel, Switzerland, the home of the BIS (Bank for International Settlements, the central bank of central banks).
The chairman appointed to head up the FSB was Mark Carney, who at the time was the governor of the Bank of Canada (Canada’s central bank). The FSB was tasked with promoting financial stability within the global financial system and making suitable recommendations to the G20 in that regard.

As Carney had already been instrumental in the shaping of the provisions of a bank bail-in policy for the Canadian chartered banks, it should be of little surprise that the FSB, in liaison with the IMF and the BIS, sought and received G20 approval to introduce formal bank bail-in procedures as a means of restructuring distressed banks in any future bank crisis.
By the G20 adopting bank bail-ins rather than bailouts, it got the taxpayer off the hook, but at the expense of any distressed banks’ depositors.

The first bank crisis to occur after the bank bail-in agreement was approved by the G20 was in Cyprus. A very brief timeline for the Cypriot bank crisis is provided below:

  • 25 June 2012: Cyprus formally requests a bailout from the European Union.
  • 24 November 2012: Cyprus announces it has reached a provisional agreement with the European Union for the bailout process, subject to the Cypriot banks being examined by EU officials (an approximate estimate of the capital needed was €17.5 billion).
  •  25 February 2013: The Democratic Rally candidate Nicos Anastasiades wins the Cypriot government elections.
  • 16 March 2013: Cyprus declares a bank holiday and announces the terms of the bank bail-in: a 6.75 percent confiscation of accounts under €100,000 and 9.9 percent for accounts larger than €100,000.
  • 17 March 2013: An emergency session of Parliament to vote on the bail-in is postponed.
  • 18 March 2013: The bank holiday is extended until 21 March 2013.
  • 19 March 2013: The Cypriot Parliament rejects the bail-in bill.
  •  20 March 2013: The bank holiday is extended until 26 March 2013.
  • 24 March 2013: Daily cash limits of €100 in ATM withdrawals are introduced.
  • 25 March 2013: A bail-in deal is agreed upon. Those depositors with over €100,000 lose 40 percent of their money in the Bank of Cyprus and lose 60 percent in Laiki Bank.

It’s important to note the speed with which these events unfolded towards the end of the actual bail-in process.

The Cypriot banks formally requested a bailout back in June 2012. The subsequent bailout talks took several months; then, without warning, the Cypriot government declared a bank holiday after the fact. Thereafter, depositors could only make very limited cash withdrawals from ATMs in accordance with a government decree. The process was not gradual; it was sudden and total.

The primary concerns of the Cyprus Central Bank, bank CEOs, government ministers, and so on, were to (a) maintain depositors’ confidence in the banking system right up to the last minute, and (b) to avoid a bank run, thereby ensuring the maximum amount of customer deposits possible were available to fund the actual bail-in. That is why no prior warning of an impending bank holiday was provided.

Western banks are generally very highly leveraged, which means that many are unable to absorb much more than a 5 percent hit to their balance sheet without the need to recapitalise. In a time of financial crisis, many banks will run the risk of incurring losses of more than 5 percent of their assets, and taking into account their derivative exposure, their losses will quickly exceed that 5 percent threshold.

The MSM continue to assure the public that the 2008 financial and economic crisis is now firmly behind us; economic activity is picking up steadily, whilst unemployment is on the decline. However, many respected financial commentators in the alternative media of the blogosphere are firmly of the opinion that far from being in recovery mode, behind the scenes:

  • Western banks are now in worse shape than they were in the lead-up to the 2008 crisis.
  • Most of the Western economies are experiencing very sluggish economic growth, with some nations arguably in or approaching recession.
  • Government debt levels are already excessive.
  • Central bank balance sheets are awash with assets of very questionable quality as a result of the 2008 crisis.  

Are bail-ins coming to a bank near you?

Unquote

After the bail-in, commercial businesses of all types found that suppliers, both local and international had cancelled their credit lines, even for long established business relationships. Almost overnight, importers and local businesses went from receiving anything between 30 days and 120 days to make payments for imports or local supplies, to having to pay for those goods upfront!

To add insult to injury, businesses, and individuals were being pressured by their banks to reduce and/or pay back their credit lines, as well as being requested to increase pledged collateral in support of their credit lines, because existing collateral values had been revised downwards by an appreciable percentage, in view of the financial crisis. Also bear in mind the fact those businesses, and their owners, had just seen a substantial percentage of their bank deposits confiscated by the bail-in.

In short, there was a sudden and dramatic cash squeeze.
The Cypriot banks were forced by the EU/IMF to significantly tighten up on all aspects of their lending practices. The impact on the local economy was immediate and not surprisingly, extremely negative.

Four years later the economy is showing some tentative signs of recovery. However, that tentative recovery will be short lived when, rather than if, the international financial system implodes again, as a result of the failure of TPTB to address the core issues that caused the 2008 crisis.

It therefore makes sense for people to make pragmatic preparations, according to their disposition, means and situation, so as to be able to ride out a widespread bank holiday of indeterminate duration. Such preparations, amongst others, might include having a suitable stash of cash on hand, water, canned and dry food stored at home, as well as physical gold and/or silver bullion stored outside the banking system in a suitably secure vault and location.

197 Comments

nuggety's picture

can't

can't bail-in my savings

2c piece's picture

Craig

Aren't you supposed to be on vacation? Hope you are able to relax and regenerate.

James thank you for reporting your first person experiences.  It will probably be worse here and take far more people by surprise.

Joseph Warren's picture

Excellent Article by Gibson

I'll have to get his book. It's fascinating, (and hopefully helpful), to read about the experiences of others who have gone through economic & social upheaval. Weimar Germany, the former USSR, Argentina, 1930s USA, Cyprus, etc

A common theme seems to be that people cannot imagine such things happening to them before they occur. Usually the signs had been there to see, for quite some time.

Pining 4 the Fjords's picture

Fantastic article, James

I'm going to work the meat of this article into a lecture for my students for next Fall, I'll blow their minds. Thank you!

The sheer speed and "post-facto" nature of these, how key to the whole enterprise it is that they're not made public until the public is trapped, was an aspect I had totally missed by following it from afar. That it's so essential to trap people in - BAM - before they can react.  Glad I get this now!

They can't bail-in my silver and gold though. Not unless they have a map, bolt cutters, a jackhammer, cutting torch, C4 and pressurised wetsuit with a rebreather. In that order. 

boomer sooner's picture

FDIC and Bank of England

FDIC and Bank of England published a paper on how bail-ins will work in the future.  Written December 2010.

If I remember correctly, the regulation was enacted in the US within the continuing spending resolution in 2012.

https://www.google.com/url?sa=t&source=web&rct=j&url=https://www.fdic.gov/about/srac/2012/gsifi.pdf&ved=0ahUKEwjj5MP7z8vUAhUK3WMKHWoeAh8QFggcMAA&usg=AFQjCNExca766dSN3Iz5C6GlmwlVlC08og

OOOBuck's picture

There's a lot of cash in IRAs, RRSPs and pension funds

that I'm sure they'd love to tap.  Registered funds here and in Canada should be safe from a bail-in but I don't know about non-invested cash and money market funds held in those accounts.  As I understand, it's the large, 'high-return' cash deposits they'll be after.

Say 'Bail-In" to a bank employee here and you'll likely get a blank stare with a slight gape and a "a-what?".  You have to read the paperwork that the government has generated.  Some of it is just sitting there waiting to be enacted and not really in force but I'll bet it could be, if they wanted, at 10pm on any Sunday of their choosing.

Angry Chef's picture

And In The Words of Greg Mannarino

" Money doesn't just go to money heaven ".

The money gets transferred from one side of a ledger to another. Our modern day money system is an extraction system for the sociopathic Eleech. They are a modern day version of the Barbarian at the gate. Simply looting the wealth of National Treasuries for there own ill gotten gain. Or as that Dutch Banker has explained. The 8,000-8,500 people that run the World and there Security Agencies that protect them.

That's where the money went.

Orange's picture

Question for James

Did you hold any shares in companies through your bank or do you know what happened to people who did?

I assume the banks did not have the ability to bail these in, however if they were sold during this time it would revert to cash and would be bailed in.

Likewise, if you had a brokerage account with cash, were these bailed in as being indirectly associated with the banks? 

lnardozi's picture

Saving and Investing

It's really important to understand the difference. Saving is done in gold and silver, and held privately. Anything else and you are a creditor - perhaps "secured", but at the end of the day unsecured no matter what you've been told because if it goes missing all you'll get is an apology and an IOU.

Oh, I have to grit my teeth and mention cr****. Because just like stocks, bonds, warrants etc. they are NOT savings. They are investments. Investments can go up (or down) that's the point of them. It kind of seems like a lot of people are looking at their stack as some sort of investment but it's not. It's your guarantee that no matter what happens in this crazy world - should you have to leave your home in the dark of night and seek a new life elsewhere, you'll be able to live in the cash economy until you're back on your feet again.

And while we're talking about instruments to protect our freedoms, how useful would it be to have a new identity prepared should it become necessary? I bet you're all thinking "what is this guy, some kind of criminal?" and the answer is "Well, yes - when the government decides you're a criminal, so you are".

jaba's picture

@ 2c piece

My pleasure

jaba's picture

@ joseph warren

Thanks. I sincerely hope that you find my book both interesting and thought provoking.

jaba's picture

@ Pining

Thank you for your kind words.

I hope that your students are able to encourage their parents to take appropriate action before the fact.

jaba's picture

@ boomer sooner

Carney, the then Governor of the Canadian central bank received his reward for developing the bank bail-in protocol by being appointed the first foreign Governor of the Bank of England since its inception in 1694.

jaba's picture

@ Joseph Warren

Interest rates were increased, particularly on borrowings.

matt_'s picture

Things are coming to a head

Dr. P. Metals's picture

Gee, another PM pennant

I wonder which way it will resolve.

I'm super duper excited pinky swear abundantly confident tickled pink with anticipation and darn sure this one will resolve to the upside (unlike the prior 100)!

Edit: and enjoy:

http://www.zerohedge.com/news/2017-06-20/argentina-100-year-bond-sale-35x-oversubscribed

jaba's picture

@ Orange

The answer to your question is no.

As far as I am aware the banks would probably have laid claim to any share portfolio only if it was pledged as collateral against any borrowings, or their standard paperwork signed by the client gave them the power to take such action.

If a brokerage had client cash holdings, those funds would probably have been subject to the bail-in process unless their client paperwork made that legally difficult i.e. the paperwork that the brokerage client signed may have made it necessary to have such cash considered as a stand alone customer deposit within the bail-in process, but if a client also had substantial cash balances elsewhere in that bank. then it may have been clubbed together for the bail-in process. But I have no specific knowledge.

There was one friend that I knew had a substantial six figure cash deposit and a similar sized loan. He was advised to transfer the cash to his wife's account so as to avoid having the danger of the bank offsetting the cash deposit against loan. He failed to do so and the bank did indeed utilise that cash to eliminate his loan.

Joseph Warren's picture

Money Heaven

Actually 'money' as it exist in the present system, is created as credit, from nothing. It is used as a claim on real wealth (PMs, physical goods, land, etc)  When there is a default on a bank 'loan', it is written off and the 'money' does disappear. When this happens on a wide scale at a severe level, there is an economic depression. 

Paraphrasing a quote I cited earlier - We live in an insane system where we prosper when banksters create credit out of thin air, and starve when they withdraw that credit . . . created out of thin air.

AIJ's picture

Wake me up when Silver trades above $25.00 / SS121

Boy, has he been right. 

AG bumping along just above the mine price......

Dr. P. Metals's picture

Re: mine price

Re: "AG bumping along just above the mine price......"

gee, what an amazing coincidence...for years on end. I'm sure it's just pure dumb luck.

AIJ's picture

Let's see...

  • TFMR hoping AU and AG trade higher in the Fiat pricesmiley
  • TFMR hoping PM Stocks trade higher in the Fiat pricesmiley
  • Cryptos REALLY trading higher in the Fiat priceangry

Which one of the above responses is illogical?

Image result for spock logic quote

Fatso's picture

Off topic, oroville dam

Extreme heat and mountain snow melt . . .any updates?

AgAuMan's picture

no worries...

In 15 days  gold and silver are going to the moon

canary's picture

Correcting my error....

A few days ago I wrote that my favorite miner PAAS was not added to the new GDXJ.....WRONG (don't know where I was looking at sad).

PAAS is actually the biggest holding of the new GDXJ....4.13%. It's also 1.55% of GDX.

garth's picture

New Carolin Gold (LAD on TSX; LADFF on OTC)

Since I recommended New Carolin Gold http://www.newcarolingold.com/ a couple weeks ago on this site (when the price dropped to 5 cents), I thought I should share an update.  Going back about 2 months ago when it was 6 cents, I decided I wanted this to be a big part of my portfolio because although there are a lot of amazing deals in the miners right now, this seemed like the best to me and they have drilling starting which is very likely to give some good catalysts.  But then, lots of selling started and I was able to pick up shares at 5 cents.  And it continued.  So I kept buying and was able to make it a big part of my portfolio as planned.  I was correct that the reason for the selling was the end of a private placement deal where the 4 months were over but I was incorrect in the number of shares that had to be sold.  Yesterday, the selling pushed the price down to 4.5 cents and I was able to pick up some more.  I then called the CEO, Robert Thast who told me that there are flow-through shares (shares that give extra tax benefits to Canadians) that had to be sold.  If I understood the math correctly, there are about 7 million shares left - that's just $315,000-$350,000 CDN at 4.5 or 5 cents a share.  It shouldn't take too much longer to go through these.  

The timeline for the long-anticipated underground drilling is now 3-4 weeks away.  This drilling will be high-probability holes to better define the resource so we'll have some good news before long.  Today shares can be bought at 4.5 cents CDN which is a real steal in my opinion.       

JQuest's picture

@ Off topic, oroville dam

Fatso...

The dam inflow rate looks minimal currently and the dam is down approx. 90 feet from emergency overflow level which is 901' elevation. Current lake elevation is 813'

http://cdec.water.ca.gov/cgi-progs/queryF?ORO

jaba's picture

Since Maguire's KWN interview

Since Maguire's KWN interview on 10th June there has been sparodic speculation on the TFMR threads as to what event might transpire on the 5th July . One post caught my eye, but I forgot who posted it, and is perhaps the most plausible guess that I have come across to date, and that was that the Chinese, who are the world's largest refiner of oil, may announce the launch of their long awaited oil futures market on that date. On its own that should not have warranted Maguire's very bullish stance on physical gold demand swamping the cartel's ability to print paper gold. However, if the Chinese do make such an announcement, but with the added twist of enabling sales proceeds of oil in yuan to be used to buy gold through the SGE. then that would be a very serious game changer. 

If that proves to be the case, then I suspect that Russia, as the world's largest oil producer, would probably simultaneously announce the launch of their own oil futures market in rubles under the auspices of SPIMEX (St Petersburg International Mercantile Exchange) with the same ability for the seller of oil in rubles to buy gold.

The above would be a sensible and logical steps in the development of China and Russia's respective financial markets. It would however be the death knell of the Petrodollar, and it  would be the start of a wild ride in the PM and forex sectors! 

From a geopolitical viewpoint, these steps would very significantly ratchet up the Second Cold War tensions. Perhaps now that the Chinese-Russian bloc can, in extremis, use their recently constructed parallel international financial system, independent of the US Dollar, to ensure continuity of international trade, they may well feel it is time to give Washington some serious pushback where it hurts - financially. The financial upside in the value of their accumulated gold holdings will more than offset any losses incurred through a devaluation of the Chinese and Russian US Dollar holdings.

Just idle speculation. Time will tell.

imodelalot2's picture

@jaba

Here is a repost of my post.

Zerohedge was reporting that China might launch their crude contract in July.  Maybe this is what AM was pointing to?  There was a great piece that Grant Williams did called "Get It, Got It? Good" that pointed to this one specific event.  Here is the link and worth the watch.

Long story short it moves oil producing countries away from the Petro-dollar in that if the contract is fully convertible into Yuan, and thus gold and silver on the SGE, presto.  No need to constantly be bidding up dollars.  Worth the watch.

So maybe its really loco Shanghi !

canary's picture

OI (final)

Gold Future -10,406   (total 44,2615)

Silver Future +859   (total 198,713).

I have NO hope for June (July is a delivery month for silver...just look at the daily pressure on it's price...coincidence? not a chance)....I expect metals to warm up before the debt ceiling mess...August, or sooner, July.....Until then, walking my wee doggies will be my only fun in life.

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