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

Founder
turd [at] tfmetalsreport [dot] com ()

  197 Comments

OOOBuck
Jun 20, 2017 - 12:53pm

OK just one more time - but I promise this is it

"I just don't like the adolescent discourtesy and bombardment associated with the 'crypto enlightenment' provided by some posters. Superior, cliquey, proselytizing and self-congratulating; and it just drones on and on. I have decided to continue reading their posts and clicking on a few of their links (just to remain informed), but I will no longer respond or provide rebuttal to any of their posts.

AGXIIK
Jun 20, 2017 - 12:55pm

'Depositors CONfidence in the banking system'

James If there was an oxymoron's oxymoron, that's it. Emph on moron.

How do you Bail in? Slowly at first, then very fast. I'm glad to hear you got out of Dodge in time. As I'm about half way through your book it got me to wondering if you bailed out before the bail in. Seems that you did.

Confidence in any banking system is a fools errand and we're the last bag holder. To assume that 2008 is behind us is a delusional as riding in the back of a bus looking out the back window and thinking were moving forward, soon to arrive at our intended destination. Aside from the fact that buses are 4 wheel loser terrariums, if a banker's driving, then we're Full On Rosa Parks without the courage to move to the front row

Actually we more like children and babies sitting in the bankster version of a child seat that always faces backwards, fed publum while being assured that everything is fine. Problem with facing backwards You never see what's about to hit you.

I ran a few current numbers and concluded that Illinois is the American version of Cyprus and California is our Greece. Got assets? Get out!!!!

A recent stat floated the other day reports that the net worth of We, the people, is around $92 trillion. Total debt ranges between $13 and $20 trillion, outside of sovereign debts at local, state and federal levels.

If the wealth bell curve is skewed severely to the right, with 90% of the wealth in the hands of the top 10%, the bottom 90% is left with about $9 trillion. If the national debt is even a mere $15 trillion, the bottom 90% own nothing. Their debt to worth ratio is 166%. That is a horrible figure when average incomes are declining, the assets are paper-based or depreciating, and Average Joe has no clue what's coming.

Final Jeopardy

Craig: "I'll take $1000 gold for $1000, Alex"

Alex: "This asset has stood the test of time and preserved wealth for 5,000 years"

Craig: " What is Bit Coin?"

Alex: "Craig, you are a moron!"

Just having a bit of fun. But dang, $1,000 gold's really good right now

lakedweller2
Jun 20, 2017 - 12:58pm

Military Industrial Complex

I imagine they can make a whole lot more money if they maintain the status quo of weapon supply so they don't have to spend on new R&D, new skilled people, no contract competitions, and/or new weapon technical advancement. Just go around harassing, killing and dominating 3rd world countries and establishing central banks and stealing resources.

The oligarchs are not into National Defense but heavily into resource theft and corporate profits. The 99.9 % financially support corporate America and guarantee their personal wealth and criminality. They are parasites on mankind and contribute nothing.

lakedweller2
Jun 20, 2017 - 1:01pm

Mr Gibson's Book

Half way through and an outanding, well organized and logical book.

jaba
Jun 20, 2017 - 1:12pm

@ AGXIIK

When the bank holiday was declared my wife and I had less than 500 Euros in our Cypriot account. We used our visa debit card to draw cash through the Cypriot ATM from our pound sterling account in the Channel Islands to augment our daily withdrawal allowance from our local account, and we were well stocked with food etc..

My wife and I have just returned from walking the dog along the shore of the Mediterranean Sea.

jaba
Jun 20, 2017 - 1:19pm

@ lakedweller2

Thank you for your kind words.

Can I ask that you and any other Turdite that has read the book, be kind enough to give it a rating on Amazon, as it helps promote the book sales and spread the knowledge of what the Puppeteers and TPTB are doing to our world behind the smokescreen put up so effectively by the mainstream media.

jaba
Jun 20, 2017 - 1:34pm

@ Joseph Warren -end their fiat credit system.

That is examined in chapter 14 along with the abolition of the central banking system.

Joseph Warren
Jun 20, 2017 - 1:38pm

@James Gibson - I just bought

@James Gibson - I just bought the Kindle edition after skimming the Table of Contents. Looks interesting. I'm going to take a little 'mini vacation' this week, and look forward to reading your book over the next couple of days. - JW

Mickey
Jun 20, 2017 - 1:54pm

73 names in GDXJ now

50 in GDX

first majestic in both, Hecla and Kirkland

you can gow to teh van eck website to get the excel spreadsheet and work them to put them together to see the overlap.

gdxj has 81 mil of AG, and GDX has 61 mil of AG-not sure what to do with that type of info yet.

petedivine
Jun 20, 2017 - 1:54pm

Gold money Debit card in a liquidity crises

Great article. I'd like to suggest that people have a little bit of their money in something like a "gold money" debit card account. I think carrying hundreds of Dollars to the grocery store while there is a liquidity crises might be a bad idea, or being seen trying to pawn gold and silver coins in the middle of a depression might be a bad idea. Having some money in A gold backed debit card might make a lot more sense in a banking crises. Something to consider.

canary
Jun 20, 2017 - 1:58pm

@lakedweller2...(the parasites...

of mankind that contribute nothing)....And when you are brave enough to face them, they accuse you of being unpatriotic and remind you about the sacrifices others made.

RickshawETF
Jun 20, 2017 - 2:03pm

More on Cyprus

The Cypriot banks were the "Cayman Islands of Banking" for the Russian oligarchs -- they all had large deposits there. Part of the meme surrounding the bail-in was that the "average Cypriot" wouldn't be that affected by it all. They were told that it was the wealthy Russians who would "pay the price" [of the bail-in]. Somehow, mysteriously, all of the Russian money was transferred out just before the banking holiday was declared!

I heard one sad tale of a British couple who had lived in Cyprus for many years, with plans to return to Britain for their retirement years. They had just sold their home in Cyprus, and the proceeds of that sale were sitting in their Cypriot bank account when the bail-in occurred. These were the types of people who suffered at the hands of the bureaucrats who ran this scam . . .

Mickey
Jun 20, 2017 - 2:05pm

In a bank crisis liquidity crisis

plastic and checks will likely not be accepted.

not sure how that kind of situation works out, having not been there before.

if banks close down for more than a day or two, the barter system takes over--an you go to a grocery store with silver dollars or bitcoins and buy anything?

lakedweller2
Jun 20, 2017 - 2:07pm

@jaba

Review: Will do.

jaba
Jun 20, 2017 - 2:08pm

@ Joseph Warren

Many thanks. I hope that you find it a worthwhile read.

Do feel free to let me have your candid feedback in due course.

jaba
Jun 20, 2017 - 2:17pm

@ RickshawETF

Some overseas branches of the Cypriot banks involved were apparently slow to close for the bank holiday enabling some very wealthy Russians to withdraw their deposits. I do not think that one needs a very active imagination to surmise why that happened.

Otherwise I heard the same stories including the British couple whose house sale proceeds were caught up in the bail-in process. Tragic.

jaba
Jun 20, 2017 - 2:19pm

@ lakedweller2

Many thanks.

surfeitndearth OOOBuck
Jun 20, 2017 - 2:27pm

Bail-ins: Canadian government budget, March 2013

ECONOMIC ACTION PLAN 2013

(page 144 / 145)

Establishing a Risk Management Framework for Domestic Systemically Important Banks

Economic Action Plan 2013 will implement a comprehensive risk management framework for Canada’s systemically important banks.

Canada’s large banks are a source of strength for the Canadian economy. Our large banks have become increasingly successful in international markets, creating jobs at home.

The Government also recognizes the need to manage the risks associated with systemically important banks—those banks whose distress or failure could cause a disruption to the financial system and, in turn, negative impacts on the economy. This requires strong prudential oversight and a robust set of options for resolving these institutions without the use of taxpayer funds, in the unlikely event that one becomes non-viable.

The Government intends to implement a comprehensive risk management framework for Canada’s systemically important banks. This framework will be consistent with reforms in other countries and key international standards, such as the Financial Stability Board’s Key Attributes of Effective Resolution Regimes for Financial Institutions, and will work alongside the existing Canadian regulatory capital regime. The risk management framework will include the following elements:

  • Systemically important banks will face a higher capital requirement, as determined by the Superintendent of Financial Institutions.
  • The 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.

This risk management framework will limit the unfair advantage that could be gained by Canada’s systemically important banks through the mistaken belief by investors and other market participants that these institutions are ―"too big to fail."

samli
Jun 20, 2017 - 2:27pm

Andrew Maguire's 26 days

The London Metals Exchange has July 4th as a ‘non LME prompt date’. A prompt date is the settlement date of a futures contract so I’m wondering if Andrew Maguire can see a huge delivery of gold that has to be made on that date.

Harvey Organ did a recent interview with Silver Doctors where he appears to be in contact with Andrew Maguire and he reckons the 26 days is related to the EFP (Exchange for Physical) process where a COMEX seller can avoid delivery by swapping it for some cash compensation and a privately negotiated futures contract for the same amount of gold which can be in London.

The last ‘non LME prompt date’ was in February so I’m speculating that since then the Comex has been avoiding lots of deliveries by swapping them for future delivery on the LME on the nearest prompt date which happens to be July 4th.

The Harvey Organ interview is on https://www.silverdoctors.com/silver/silver-news/this-thing-is-going-dow...

RickshawETF
Jun 20, 2017 - 2:30pm

@jaba

Thanks for the clarification. I had heard about the overseas branch "loophole" that allowed the big money to avoid the net. I had read a lot about it at that time, in anticipation of when the bail-in hits our shores (the U.S.) . . .

streber
Jun 20, 2017 - 2:31pm

Re USA DoD spending more than 10 next countries

Thinking about comments above that Russia has new, deadly & accurate weapons systems, I searched "f-35 waste."
Many hits but essentially:
1. DoD has spent $1.5 trillion to $2 trillion
2. The F-35 program is a mega disaster & waste. It is just another welfare program.

Not even gonna mention that the U S Military has become a victim for social welfare experimenting: Wimmen in Special Forces, Transgender funding (I've seen the memo to Dept Heads outlining Obama's protocol on handling transgenders. What a crock! It just lies dead now since Trump & Mattis. Nevertheless...WTF? )

OOOBuck
Jun 20, 2017 - 2:51pm

Bail Ins - ala Carney

One of these Carneys is smarter than the other.

ancientone
Jun 20, 2017 - 2:52pm
OOOBuck
Jun 20, 2017 - 2:52pm
OOOBuck
Jun 20, 2017 - 2:54pm

That's twice. I give up

It was two photos - one was of Art Carney the other was Mark Carney.

Now it's just a badly told joke.

ancientone
Jun 20, 2017 - 2:55pm
DPMS308
Jun 20, 2017 - 2:57pm

@RickshawETF Money transferred out

"Somehow, mysteriously, all of the Russian money was transferred out just before the banking holiday was declared!"

Many of the Russians used Bitcoin which was the reason for the spike in price. Can you imagine how happy some of them are right now if they kept a 100 or so Bicoins?

tyberious
Jun 20, 2017 - 2:57pm

U.S. Senate: Crypto Currency

U.S. Senate: Crypto Currency Killer Bill

U.S. Senate: Crypto Currency Killer Bill
ancientone
Jun 20, 2017 - 2:58pm
OOOBuck
Jun 20, 2017 - 3:01pm

F35s - We sold them to Canada HAHAHA

Mind you, if they didn't place their order for I don't know how many, we threatened to pull all kinds of 'perks' they're currently getting from us. That's how we sell this shit and then feed a phony success story to the American public.

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