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

197
Mon, Jun 19, 2017 - 9:39pm

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.

About the Author

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turd [at] tfmetalsreport [dot] com ()

  197 Comments

nuggety
Jun 19, 2017 - 11:58pm

can't

can't bail-in my savings

Joseph Warren
Jun 20, 2017 - 12:38am

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.

Jun 20, 2017 - 12:44am

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.

2c piece
Jun 20, 2017 - 12:46am

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.

boomer sooner
Jun 20, 2017 - 1:12am

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.go...

OOOBuck
Jun 20, 2017 - 1:25am

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.

Joseph Warren
Jun 20, 2017 - 3:35am
Angry Chef
Jun 20, 2017 - 7:51am

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
Jun 20, 2017 - 8:28am

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
Jun 20, 2017 - 8:41am

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".

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Key Economic Events Week of 12/9

12/10 8:30 ET Productivity and Unit Labor Costs
12/11 8:30 ET CPI
12/11 2:00 pm ET FOMC fedlines
12/11 2:30 pm ET CGP presser
12/12 8:30 ET PPI
12/13 8:30 ET Retail Sales
12/13 10:00 ET Business Inventories
12/13 11:00 ET Goon Williams speech

Key Economic Events Week of 12/2

12/2 9:45 ET Markit Manu PMI
12/2 10:00 ET ISM Manu PMI
12/2 10:00 ET Construction Spending
12/4 9:45 ET Markit Services PMI
12/4 10:00 ET ISM Services PMI
12/5 8:30 ET Trade Deficit
12/5 10:00 ET Factory Orders
12/6 8:30 ET BLSBS
12/6 10:00 ET Wholesale Inventories

Key Economic Events Week of 11/25

11/25 8:30 ET Chicago Fed Nat'l Idx
11/25 7:00 pm ET CGP speech
11/26 8:30 ET Advance Trade
11/26 9:00 ET Case-Shiller home prices
11/26 10:00 ET New home sales
11/26 10:00 ET Consumer Confidence
11/27 8:30 ET Q3 GDP 2nd guess
11/27 8:30 ET Durable Goods
11/27 9:45 ET Chicago PMI
11/27 10:00 ET Pers Inc & Cons Spndg
11/27 10:00 ET Core inflation
11/27 2:00 pm ET Beige Book

Key Economic Events Week of 11/18

11/19 8:30 ET Housing Starts & Bldg Perms
11/20 2:00 ET October FOMC minutes
11/21 8:30 ET Philly Fed
11/21 10:00 ET Existing Home Sales
11/22 9:45 ET Markit November Flash PMIs

Key Economic Events Week of 11/11

11/12 Three Fed Goon speeches
11/13 8:30 ET CPI
11/13 11:00 ET CGP on Capitol Hill
11/14 8:30 ET PPI
11/14 Four Fed Goon speeches
11/14 10:00 ET CGP on Capitol Hill
11/15 8:30 ET Retail Sales
11/15 8:30 ET Empire State Manu Index
11/15 9:15 ET Cap Ute and Ind Prod
11/15 10:00 ET Business Inventories

Key Economic Events Week of 11/4

11/4 10:00 ET Factory Orders
11/5 9:45 ET Markit Services PMI
11/5 10:00 ET ISM Services PMI
11/6 8:30 ET Productivity & Labor Costs
11/6 Speeches by Goons Williams, Harker and Evans
11/8 10:00 ET Consumer Sentiment
11/8 10:00 ET Wholesale Inventories

Key Economic Events Week of 10/28

10/30 8:30 ET Q3 GDP first guess
10/30 2:00 ET FOMC fedlines
10/30 2:30 ET CGP presser
10/31 8:30 ET Personal Income & Spending
10/31 8:30 ET Core Inflation
10/31 9:45 ET Chicago PMI
11/1 8:30 ET BLSBS
11/1 9:45 ET Markit Manu PMI
1/1 10:00 ET ISM Manu PMI

Key Economic Events Week of 10/21

10/22 10:00 ET Existing home sales
10/24 8:30 ET Durable Goods
10/24 9:45 ET Markit flash PMIs
10/24 10:00 ET New home sales
10/25 10:00 ET Consumer Sentiment

Key Economic Events Week of 10/14

10/15 8:30 ET Empire State Fed MI
10/16 8:30 ET Retail Sales
10/16 10:00 ET Business Inventories
10/17 8:30 ET Housing Starts and Bldg Perms
10/17 8:30 ET Philly Fed MI
10/17 9:15 ET Cap Ute and Ind Prod
10/18 10:00 ET LEIII
10/18 Speeches from Goons Kaplan, George and Chlamydia

Key Economic Events Week of 10/7

10/8 8:30 ET Producer Price Index
10/9 10:00 ET Job Openings
10/9 10:00 ET Wholesale Inventories
10/9 2:00 ET September FOMC minutes
10/10 8:30 ET Consumer Price Index
10/11 10:00 ET Consumer Sentiment

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