Dates that go down in history: Tuesday March 19, 2013

[LondonMix]

They will have to maintain capital controls for a while I imagine. The 2nd largest bank is being broken up. The remaining institutions will have access to the liquidity facility (to deal with lack of funds) and be recapitalised to deal with underlying solvency issues. However, given that the financial system there was basically a tax-haven / money laundering center for wealthy foreigners, its fair to assume the size of the banking sector will be dramatically reduced in future as foreigners will all flee once the controls are removed. Many banks are going to have to be merged etc.

[silverfox]

I don't really understand all this talk about money laundering and Cyprus, and wonder how much of an excuse it is for this debacle.

If the authorities can prove money laundering then there must be plenty of laws and banking regulations that allow the money to be seized on the basis it is the proceeds of crime etc. For example, if it could be proved that ?15bn of the Russian ?30bn on deposit is from gangsters why not just appropriate it legally under anti-laundering laws and then Cyprus wouldn't need a bail out.

Something very fishy about what's gone on with Cyprus. Or rather, the lack of clarification from Europe about what's gone on is suspect.

I suspect it is really very simple. The EU cannot afford to keep bailing out countries and the prospect of having to bail out Spain and Italy (and probably France) will bring the whole house of cards tumbling down. Hence, send out the message that we'll raid your bank accounts and to hell with the legality of doing so.

[New Nexus]

This is one mafia style group IMF ?wacking? another mafia style group Russian ?oligarchs? via proxies.

Please remember Europe ?some dishes are best served cold?

Regarding clients of tax dodging offshore banking havens, lets not forget LIBOR and drug money laundering UK and U.S. banks, maybe a little less pot & kettle talk.

[Top Banana]

The EU seems to tear up the rule book every day. The capital controls in Cyprus go against its own treaties.

"Free movement of capital is at the heart of the Single Market and is one of its 'four freedoms'. It enables integrated, open, competitive and efficient European financial markets and services - which bring many advantages to us all."

http://ec.europa.eu/internal_market/capital/index_en.htm

Now the precedence has been set, other countries are going to steal from savers. New Zealand is hoping to implement its OBR - Open Bank Resolution Policy.

"The implementation of OBR would see all unsecured liabilities that rank equally among themselves, including deposits, having a portion frozen. If a bank fails under OBR, all depositors will have their savings reduced overnight to help fund the bank?s bail out."

Spain, it would appear, has changed constitutional rules to enable a so-called ?moderate? levy on deposits.

http://economia.elpais.com/economia/2013/03/19/actualidad/1363720713_602578.html

Joerg Kraemer, chief economist of the German Commerzbank, has called for private savings accounts in Italy to be levied at 15%. ?A tax rate of 15 percent on financial assets would probably be enough to push the Italian government debt to below the critical level of 100 percent of gross domestic product,? he told Handelsblatt.

What constitutes "financial assets"? The value of your house?

In December 2012 the Federal Deposit Insurance Corporation and the Bank of England published a joint paper outlining their new approach for how to resolve any future collapse of one of the Too-Big-To-Fail banks, called ?Resolving Globally Active, Systemically Important, Financial Institutions?. The paper is the blue print for how collapses, at what it calls G-SIFIs (Globally Systemically Important Financial Institutions) will be dealt with in future.

Section 34 states -:

34 The U.K. has also given consideration to the recapitalization process in a scenario in which a G-SIFI?s liabilities do not include much debt issuance at the holding company or parent bank level but instead comprise insured retail deposits held in the operating subsidiaries. Under such a scenario, deposit guarantee schemes may be required to contribute to the recapitalization of the firm, as they may do under the Banking Act in the use of other resolution tools. The proposed RRD also permits such an approach because it allows deposit guarantee scheme funds to be used to support the use of resolution tools, including bail-in, provided that the amount contributed does not exceed what the deposit guarantee scheme would have as a claimant in liquidation if it had made a payout to the insured depositors.

http://www.bankofengland.co.uk/publications/Documents/news/2012/nr156.pdf

What it says is that the money that the Deposit scheme contains would now be used to bail out to the bank in order to prop it up. In other words the new system makes the Deposit Guarantee fund available for use as bail out money, and in effect, useless as protection for you and me.

Now, if I was a "reckless investor" I might expect to lose money sometimes. But, I'm not - I bank with NatWest. However, if RBS Investment Bank decides to mess up again, then according to some commentators here I should pay for their mistakes. I haven't done my due dilligence in checking the health of the Bank.

However, given overnight money markets, LIBOR, dollar swaps, derivatives, shadow banking, bond markets, EURIBOR, PMI's and whatever else, just how the hell am I supposed to do that?

[LondonMix]

Yes, there is plenty of hypocrisy though I think it would be unfair to claim the UK have tried to build their economy specifically as a money laundering / tax dodging haven. Either way, a lot of the criticism of Cyprus has been unfair. Germany saying that finance was too large a portion of the economy was nonsense. Luxembourg (another tax haven in which finance makes up a huge portion of the ecnomy) rightly points out that no one ever suggests that automobiles or weapons manufacturing are too large a portion Germany?s economy. Countries specialize in doing different things.

New Nexus Wrote:

-------------------------------------------------------

> This is one mafia style group IMF ?wacking?

> another mafia style group Russian ?oligarchs? via

> proxies.

>

> Please remember Europe ?some dishes are best

> served cold?

>

> Regarding clients of tax dodging offshore banking

> havens, lets not forget LIBOR and drug money

> laundering UK and U.S. banks, maybe a little less

> pot & kettle talk.

[LondonMix]

Sorry but you haven't got that right. I am fluent in Spanish. The article in Spain says

El ministro de Hacienda y Administraciones P?blicas, Crist?bal Montoro, ha avanzado hoy martes que el Gobierno va a imponer un tipo "moderado" a los dep?sitos bancarios para compensar a las comunidades que vieron anulado su impuesto auton?mico despu?s de que el Ejecutivo creara un impuesto estatal a tipo 0%. Este impuesto sobre los dep?sitos bancarios, que no tiene nada que ver con el de Chipre, no afecta a los ahorradores sino que obliga a las entidades de cr?dito a pagar por los dep?sitos que capten.

Pay attention to the last line which translates as-- this tax will not affect savers but rather will oblige the financial entities to pay taxes on the deposits they hold. There use to be a levy in place at the regional level that was automatically annuled by a recent law put in place. This is restoring the status quo.

Regarding the analysis from the Bank of England it's hard to say without context but what they appear to be suggesting in you extract is as follows. If a bank went bankrupt (i.e. wasn't bailed out), the depositors insurance scheme would have to pay out for deposits below 100k. When the state steps in and saves a bank, so far, the insurance scheme didn't have to kick in and wasn't used. What they are proposing is that when a bank is saved from failure through recapitalisation from the state etc, that the insurance scheme contribute to the bailout up to the amount it would have to have paid out if the bank had in fact failed (putting it in plain English).

The chief economist of Commerzbank can say what he wants. Commerz was a private bank like RBS that failed and had to be bailed out by the German state. They are just quoting someone without any particular influence within the EU decision making mechanism to further scaremonger depositors. Commerz isn't part of the government and the economist there is just a private individual stating his own view and has now influence of public policy.

I'm not saying there is nothing to be concerned about but you should be clear about what is and what isn't being done and how important people being quoted are.

Top Banana Wrote:

-------------------------------------------------------

> The EU seems to tear up the rule book every day.

> The capital controls in Cyprus go against its own

> treaties.

>

> "Free movement of capital is at the heart of the

> Single Market and is one of its 'four freedoms'.

> It enables integrated, open, competitive and

> efficient European financial markets and services

> - which bring many advantages to us all."

>

> http://ec.europa.eu/internal_market/capital/index_

> en.htm

>

> Now the precedence has been set, other countries

> are going to steal from savers. New Zealand is

> hoping to implement its OBR - Open Bank Resolution

> Policy.

>

> "The implementation of OBR would see all unsecured

> liabilities that rank equally among themselves,

> including deposits, having a portion frozen. If a

> bank fails under OBR, all depositors will have

> their savings reduced overnight to help fund the

> bank?s bail out."

>

> Spain, it would appear, has changed constitutional

> rules to enable a so-called ?moderate? levy on

> deposits.

>

> http://economia.elpais.com/economia/2013/03/19/act

> ualidad/1363720713_602578.html

>

> Joerg Kraemer, chief economist of the German

> Commerzbank, has called for private savings

> accounts in Italy to be levied at 15%. ?A tax

> rate of 15 percent on financial assets would

> probably be enough to push the Italian government

> debt to below the critical level of 100 percent of

> gross domestic product,? he told Handelsblatt.

>

> What constitutes "financial assets"? The value of

> your house?

>

> In December 2012 the Federal Deposit Insurance

> Corporation and the Bank of England published a

> joint paper outlining their new approach for how

> to resolve any future collapse of one of the

> Too-Big-To-Fail banks, called ?Resolving Globally

> Active, Systemically Important, Financial

> Institutions?. The paper is the blue print for how

> collapses, at what it calls G-SIFIs (Globally

> Systemically Important Financial Institutions)

> will be dealt with in future.

>

> Section 34 states -:

>

> 34 The U.K. has also given consideration to the

> recapitalization process in a scenario in which a

> G-SIFI?s liabilities do not include much debt

> issuance at the holding company or parent bank

> level but instead comprise insured retail deposits

> held in the operating subsidiaries. Under such a

> scenario, deposit guarantee schemes may be

> required to contribute to the recapitalization of

> the firm, as they may do under the Banking Act in

> the use of other resolution tools. The proposed

> RRD also permits such an approach because it

> allows deposit guarantee scheme funds to be used

> to support the use of resolution tools, including

> bail-in, provided that the amount contributed does

> not exceed what the deposit guarantee scheme would

> have as a claimant in liquidation if it had made a

> payout to the insured depositors.

>

> http://www.bankofengland.co.uk/publications/Docume

> nts/news/2012/nr156.pdf

>

> What it says is that the money that the Deposit

> scheme contains would now be used to bail out to

> the bank in order to prop it up. In other words

> the new system makes the Deposit Guarantee fund

> available for use as bail out money, and in

> effect, useless as protection for you and me.

>

> Now, if I was a "reckless investor" I might expect

> to lose money sometimes. But, I'm not - I bank

> with NatWest. However, if RBS Investment Bank

> decides to mess up again, then according to some

> commentators here I should pay for their mistakes.

> I haven't done my due dilligence in checking the

> health of the Bank.

>

> However, given overnight money markets, LIBOR,

> dollar swaps, derivatives, shadow banking, bond

> markets, EURIBOR, PMI's and whatever else, just

> how the hell am I supposed to do that?

[Top Banana]

Thanks for that, LM. I had run it through Google Translate, so YMMV.

With regard to the BoE, I read it as described. RBS GBM can have a whale moment or CDS exposure or whatever and suddenly find itself with no liquidity. Then I, as a subsidery customer have my "guaranteed" money going straight to the bail-in fund.

With regard to the quote I understand his position however I was highlighting the ideas which two weeks ago would never have been publicly suggested being thrown around now.

[LondonMix]

Yes, what's happened in Cyprus has definitely emboldened people to express pretty damaging ideas.

Regarding the BofE proposal I?d be surprised if small depositor?s coverage would end. If you can imagine under a Lehman, ?we?ll just let it fail and wind it up? scenario the following would occur. The bank fails but ?small? depositors are protected. As the bank is being wound up, you as a protected depositor would be paid a sum by the Financial Services Compensation Scheme (which is funded by a levy on private financial firms that builds up reserves over time). You would then take this money and deposit it in another bank and it would automatically be insured again. Therefore, I?d be surprised if the government were proposing to allow the FSCS off the hook regarding insurance on the deposits of the recapitalized institution. I think they are simply saying, just because we step in, you aren?t off the hook. Contribute to the bailout up to at least the amount you would have to if we hadn?t stepped in and then we?ll have a new solvent bank to work from as normal. I can?t open the entire document so I might be wrong but I can?t see that post recap, small depositors would somehow become uninsured.