The Canadian Government Offers "Bail-In" Regime, Prepares For The Confiscation Of Bank Deposits To Bail Out Banks

Reggie Middleton's picture

 

canadian dollar 400

Continuing my series of banks ready to "Cyprus" their depositors, I offer this reader contribution from Don from Canada 2013-03-29 23:11:

As part of the 2013 budget in Canada, the Minister of Finance tabled the Economic Action Plan 2013 which included the newest buzzword 'bail-in'.

Source: budget.gc.ca/.../...
Page 145
“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.
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’.”

A depositor is an unsecured creditor to a bank. The Canadian government presents its position to be one of shielding the taxpayer from the need to pay for bailing out a failing bank. As a taxpayer that is comforting. 
However as a depositor, the phrase “rapid conversion of certain bank liabilities into regulatory capital” concerns me. My deposit is the bank’s liability. Could depositors’ funds fall under the definition of ‘certain bank liabilities’? 
I searched the entire 442 page document and I cannot find where the term ‘certain bank liabilities’ is defined.
The prudent approach I believe would be to assume that under certain conditions, certain bank liabilities will include depositors’ funds; at least those funds in excess of CAD 100,000 which is our so-called insured amount.
Even if it has noble intentions now, under a credit and derivatives collapse scenario, it is conceivable that the Canadian government could be coerced or bullied by external agents into grabbing depositors’ funds just like what is happening in Cyprus.
I find the newest ‘bail-in’ term being used since the Cyprus debacle quite amusing. It reminds me of the ‘sit-in’ and ‘love-in’ terms of the peace/hippie generation.
We all seem to be floating on the bathwater of fiat currency liquidity. The tub is being drained at the opposite end from where we are floating. The EU is circling the drain. The central banks are feverishly trying to replenish the tub with thimbles full of water, but it appears inevitable that some will go down the drain, whilst others will be left high and dry. The central bankers only have thimbles, not a drain stopper.

________________________________________________________________________
Now, tell me if this looks even remotely familiar... from an article publsihed in the Financial Times on February 10, 2013 which clearly, accurately and timely foretold the events to unfold over the following 45 days or so :
A radical new option for the financial rescue of Cyprus would force losses on uninsured depositors in Cypriot banks, as well as investors in the country’s sovereign bonds, according to a confidential memorandum prepared ahead of Monday’s meeting of eurozone finance ministers.

The proposal for a “bail-in” of investors and depositors, and drastic shrinking of the Cypriot banking sector, is one of three options put forward as alternatives to a full-scale bailout. The ministers are trying to agree a rescue plan by March, to follow the presidential elections in Cyprus later this month.

By “bailing in” uninsured bank depositors, it would also involve more foreign investors, especially from Russia, some of whom have used Cyprus as a tax haven in recent years. That would answer criticism from Berlin in particular, where politicians are calling for more drastic action to stop the island being used for money laundering and tax evasion.

Labelled “strictly confidential” and distributed to eurozone officials last week, the memo says the radical version of the plan – including a “haircut” of 50 per cent on sovereign bonds – would shrink the Cypriot financial sector, now nearly eight times larger than the island’s economy, by about one-third by 2015.

Senior EU officials who have seen the document cautioned that imposing losses on bank depositors and a sovereign debt restructuring remain unlikely. Underlining the dissuasive language in the memo, they said that bailing in depositors was never considered in previous eurozone bailouts because of concern that it could lead to bank runs in other financially fragile countries.

But the authors warn such drastic action could restart contagion in eurozone financial markets...

Oh, and it can get worse. Zerohedge reports, via Reuters, that there will be absolute wipeouts for some big depositors in Cyprus:

In what appears to be drastically worse than many had hoped (and expected), uninsured depositor in Cyprus' largest bank stand to get no actual cash back from their initial deposit as the plan (expected to be announced tomorrow) is:

    • 22.5% of the previous cash deposit gone forever (pure haircut)
    • 40% of the previous cash deposit will receive interest (but will never be repaid),
    • and the remaining 37.5% of the previous cash deposit will be swapped into equity into the bank (a completely worthless bank that is of course.)

So, theoretically this is 62.5% haircut but once everyone decides to 'sell' their shares to reconstitute some cash then we would imagine it will be far greater. Furthermore, at what valuation will the 37.5% equity be allocated (we suspect a rather aggressive mark-up to 'market' clearing levels).

Critically though, there is no cash. None. If you had EUR150,000 in the bank last week (net of insured deposits which may well be impaired before all is said and done) you now have EUR0,000 to draw on! But will earn interest on EUR60,000 (though we do not know at what rate); and own EUR56,250 worth of Bank of Cyprus shares (the same bank that will experience the slow-burn leak of capital controlled outflows).

In the post "EU Bank Depositors: Your Mattress Is Starting To Look Awfully Attractive - Bank Risk, Reward & Compensation", I offered a way to calculate what return you should expect to receive to take on the risk of a potential 40% haircut. The second tab offers what recent Cyprus bank rates were. Do you see a disparity??? To bring things up to date, up the haircut to 63% and you will find that no bank in the world will compensate you for the risk you assume in banking there. Banco Posturepedico shares: Strong BUY!!!!

Now that you see its just Cyprus - the perceived uber-conservative Canadian banks are prepping to Cyprus their depositors as well.
Oh, it gets worse.
I will start posting a list of definitive bank names that I have apparently caught in some amazingly duplicitous and misleading capital schemes, at least as it appears to me and my staff. I know I wouldn't have MY money in them, particularly after reading the info above. The first bank name and a description of their actions are avialable to all paying subscribers right now in the right hand downloads column and in the commercial bank research section of my site. I will release a new bank expected to be "Cyprus'd" every 48 hours to subscribers until I run out of definitive candidates. Yes it pays to be a BoomBustBlog member (click here to subscribe). 
This Easter weekend, I will also release a PSA (public service announcement) to give a heads up to non-paying subscribers and readers who are too comfortable with their current banking arrangement.
 
As a reminder for those who wish to ignore my banking calls as a frivolous episode of Chicken Little, BoomBustBlog is the place that was the first to reveal:
  1. The collapse of Bear Stearns in January 2008 (2 months before Bear Stearns fell, while trading in the $100s and still had buy ratings and investment grade AA or better from the ratings agencies): Is this the Breaking of the Bear? 
  2. The warning of Lehman Brothers before anyone had a clue!!! (February through May 2008): Is Lehman really a lemming in disguise? Thursday, February 21st, 2008 | Web chatter on Lehman Brothers Sunday, March 16th, 2008 (It would appear that Lehman’s hedges are paying off for them. The have the most CMBS and RMBS as a percent of tangible equity on the street following BSC. 
  3. The collapse of the regional banks (32 of them, actually) in May 2008: As I see it, these 32 banks and thrifts are in deep doo-doo! as well as the fall of Countrywide and Washington Mutual
  4. The collapse of the monoline insurers, Ambac and MBIA in late 2007 & 2008: A Super Scary Halloween Tale of 104 Basis Points Pt I & II, by Reggie Middleton, Welcome to the World of Dr. FrankenFinance! and Ambac is Effectively Insolvent & Will See More than $8 Billion of Losses with Just a $2.26 Billion
  5. The ENTIRE Pan-European Sovereign Debt Crisis (potentially soon to be the Global Sovereign Debt Crisis) starting in January of 2009 and explicit detail as of January 2010: The Pan-European Sovereign Debt Crisis
  6. Ireland austerity and the disguised sink hole of debt and non-performing assets that is the Irish banking system: I Suggest Those That Dislike Hearing “I Told You So” Divest from Western and Southern European Debt, It’ll Get Worse Before It Get’s Better!
The problems that plagued Cyprus banks plague banks in much larger nations within, and around the EU. From Ovebanked, Underfunded, and Overly Optimistic: The New Face of Sovereign Europe you see institutions that are literally too big to be handled safely...

The Banks Are Bigger Than Many of the Sovereigns

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Ready! Set! Bank Run!!!

Cyprus contagion rawCyprus contagion raw

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Seasmoke's picture

What the fuck is TD Bank story ???

steveo77's picture

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jumbo maverick's picture

I can't take it anymore! Any fool says bail in around me then I'm gonna ram a three hole punch right down their fucking throat.

Enough of this bullshit. Fuck them. I'm tired of all this shit. Motherfucker fuck

lolmao500's picture

Good thing my money is in a credit union then...

Herdee's picture

Right now a major court case is proceeding in Canada and certain people want what's called "the original mandate of the Bank of Canada brought back".The case states that the way the Bank of Canada operates today is illegal and they want to force the original mandate on the Government and The Bank.

Absalon's picture

The law suit was commenced over a year ago and seems to be going no where.  "Major court case", my ass.

lolmao500's picture

Let's make a list of Canadian banksters and where they live... might be useful in the future.

thisandthat's picture

Reggie, by law, all locally opened accounts are protected up to 100k per holder and per bank, even at non-EU banks (as long as these don't already equally protect them, through other means); so a single joint account (say, a couple's joint account) is insured up to 200k, while two single-holder accounts at the same bank are only jointly insured up to a grand total of 100k. If the guarantee fund proves underfunded, further contributions or loans apply, but here's the kicker: the contribution in Portugal, in 2011, was a mere .03% of held deposits!

lindaamick's picture

No surprise.  Stephen Harper is a Goldman guy.

Abrick's picture

Stephen Harper is a mail room worker drone put in his position by TPTB. Find me one personal private sector accomplishment of note, that he has achieved, and I will retract.  I've been looking for 3 years, haven't found one yet.

Absalon's picture

All Canada seems to be saying is: If a big bank gets in trouble we are going to force a quick debt for equity swap.  Now the swap may not be into shares - it may be into subordinated, long term, debt at low interest rates (perhaps with a conversion right).  This is a perfectly sensible approach and any one who believes in free markets and market discipline should applaud the Canadian initiative.

As someone else noted the biggest risk to Canadian banks seems to be the Royal Bank's exposure to derivatives.  It will be interesting to see if the government says that counterparties on derivatives would be subject to the swap - they certainly should be. 

Kiss My Icelandic Ass's picture

I might be inclined to applaud too, if the measure were presented in a transparent, above-board way. Looks like deliberate obfuscation to me ...

Kiss My Icelandic Ass's picture

"I will start posting a list of definitive bank names that I have apparently caught in some amazingly duplicitous and misleading capital schemes "

My money is on [if not "in"] Crédit Agricole, a huge bank with an E- rating from Weiss Research ( E- = on the verge of collapse ) ...

Similarly Royal Bank of Scotland and Lloyds Banking Group .

Joebloinvestor's picture

Watch the bank runs in Montreal when France pulls the same shit Cyprus did.

Duke Dog's picture

i think some here are confused - they will not use the "bail in" because they have to in order to prop the system. As has been pointed out, countries like Canada/USA can "print and QE" to involuntarily "bail in", not just depositors, but every citizen/taxpayer. BUT, they will need it, and will use it, for the FINAL FUCKING BAIL IN.

Printing/QE simply buys the needed time for PTB to get positioned properly (they make the rules therefore know when/how etc.. the steps occur) - when the table is set, the entire system will be imploded and every single digital dollar of financial assets will be "Corzined/Cyprused". In other words, as is said around here by some posters "All your wealth are belong to us", LMAO. jd.

DeeDeeTwo's picture

Unlike Cyprus, Canada has a legit economy based on endless natural resources.

Only a pure Fraud Artist like "Reggie" would conflate the two = con the rubes.

 

Kiss My Icelandic Ass's picture

Absolutely right ! Too big to fail ! LMFAO ....

Mototard at Large's picture

Reggie:

You note that your commentator's search in the 442 page budget document did not reveal what "certain banking liabilities" means.

As a maple syrup eater and diehard Montreal Canadiens Fan (spelling is correct!) I took this immediately to mean bank deposits.  Also took the time to look it up and wrote about it on 27 March:  http://tinyurl.com/cvcf9v9

My guess is this provision is in the Canadian federal budget which was tabled on 21 March 2013 as our finance ministry is probably more-than-a-bit nervous about his stuff. 

There are similiar provisions in a joint FDIC and Bank of England document written in Dec 2012.  They sould a bit nervous as well.  See paragraph 34. Explanation of that at: http://tiny.cc/z4jcuw

Keep your stick on the ice!

 

 

Whalley World's picture

I work with a longtime bank operations exec who advised me to fund my line of credit and use the positive balance for all cash transactions as l.o.c.'s do not have service fees.

I wonder if this positive balance in a line of credit would be bypassed by a bail in of savings and chequing accounts.

Barry McBear's picture

Thanks for the tip, I'm going to look in to funding my LOC and then using it for transactions.

Cheers.

taketheredpill's picture

As far as I am aware, the liabilities referred to in "bail in" are unsecured debt (not deposits), with the possibility of conversion written into the indenture.  These would yield well above senior debt with the risk of conversion.  I will be reading more next week on the bail-n as well as coco.

That said, nothing surprises me these days, so...

 

Confundido's picture

This is way overdone, Reggie. Look, to be honest, I hold nothing else but gold. But even then, Canada can and would engage in QE if needed, just like they did in 2008, with the govt. buying govt guaranteed mortgages. You don't believe me? Think about this then: Do you think any Canadian lobby group would protest if the Canadian dollar was devalued all the way to CAD 1.25 per 1 USD??? Nobody would. Every single business man would support that and the stupid consumers would be on side too. So, there is a long, long way to that and you must understand that Canadian banks rule Canada. There is no stronger lobby/power group, except perhaps the Desmarais family, in the country. They would never allow a run or capital controls because the whole thing would fall apart and there is Crown money involved here big time. You fuck with Canadian banks and you fuck with the house of Windsor. Not going to happen. As much as I sympathize with the cause as a gold bug, I am more realistic than you are.

gordsav's picture

   the   5   have  30   trillion  in   motherfucking   derivatives     do  the   fucking   math   you  are  implicitly   endorsing   fascism   cuntface

Confundido's picture

Why that verbal violence? Exactly because they are tbtf the most likely outcome is monetization, particularly as I said, because everybody would welcome the devaluation of the CAD with open arms.

gordsav's picture

  30   trillion  in   derivatives    do  the   arithmetic    and   stop  being    canadian

FranSix's picture

The budget provisions are only too vague from the Government of Canada.  But it's easy to see why they adopted the bail-in, since ABCP blew up in 2005, banks have become heavily exposed to covered bonds.  The budget did not necessarily change banking laws, but states that taxpayers are not bailing anyone out.

It's these bond holders that will take the haircut, should some banking sector collapse occur.  The housing bubble is in decline and about to gain momentum.  It was the taxpayers that bailed out all of the ABCP holders 100%, despite the frauds, they are most certainly not going to bail out mortgage scams.

Bond holders are basically stuck with their positions when the bail-in is excercised, this does not mean that depositors are at risk.

Canadian government bond markets are 'AAA,' meaning if banks get into trouble, they can always swap their paper for government bonds with the central bank.  That means the taxpayer is actually on the hook, but that won't preclude any serious oversights in the banking sector, either.

jimmyjames's picture

, but states that taxpayers are not bailing anyone out.

***************

By the looks of things the taxpayers have already contributed to those insolvent Cndn. banks-

CMHC’s guarantees-in-force totalled $377 billion as at 30 June 2012, 4% higher than total guarantees-in-force at year end 2011 and 1% higher than in the first quarter of 2012. CMHC’s authorized guarantees-in-force limit is $600 billion.

CMHC’s total insurance-in-force increased to $576 billion at the end of the second quarter of 2012, nearly 2% higher than total insurance-in-force at year end 2011 and 1% higher than in the first quarter of 2012.

These government insurance guarantees are now close to and by now- likely over 1 trillion- in a country with a population of just over 30 million which would be per capita equivalent to about 10 trillion in the US-

http://www.cmhc-schl.gc.ca/en/corp/about/core/upload/CMHC-Quarterly-Financial-Report-June-30-2012.pdf

Blame Crash's picture

Dream on Reggie, and the rest of you as well.

None of the these fevered imaginings are going to happen in Canada. You guys don't know shit about Canada, that's pretty obvious from reading some os the dumb-ass comments here.

The government , nor the people of Canada would allow the confiscation of peoples savings. PERIOD.

There is no and's, if's or doubts about it.

And not only that, they never will need to do it, because YAH, IT IS DIFFERENT HERE.

Again, you guys don't know the first thing about Canada.

BigInJapan's picture

Baaaa
Baaaaaa
Baaaaaaaa

Yup. Canada. The only bubble that'll never burst, eh? Just 'cause, eh? Yeah shur ya know, right? Oh yah, sher. Fer sher.

jonjon831983's picture

So explain how things are different in Canada aside from "YAH, IT IS DIFFERENT HERE".

 

THanks

Mototard at Large's picture

Sorry.  As an ex-banking community member, hockey lover  and a certified maple syprup eater, you are not correct. Canada is a bit better organized in the banking sector than the USA.  That much is true.  But our Canadian banks like RBC have some fairly significant exposure to dertivatives (and other stuff) as well.  Most Canadian banks are only leveraged out 15 or 16 to one which is way better than 30 to 1.   But having said that, if they were to lose 6.6% of their capital due to an unwind in the derivatives market or any other sudden mess, then they too would be *****.

The government of Canada probably put this stuff in the 21 March 2012 budget for a reason - they are nervous.

BTW - I wrote about this on the 27th of March.  You can see it at  http://tinyurl.com/cvcf9v9

 

gordsav's picture

  then  whatz  the   provision   doing   in  the   mar21  budget   you   total   fuckspittle

Blame Crash's picture

It's really too bad that your biting commentary is all gum and no teeth.

I'd ask how it is that came about by I can guess what happened.

You really to practice ducking and weaving.

Whalley World's picture

Then why would they include the bail in provision?

Professorlocknload's picture

My shot at that is, bail in was put there as propaganda, intended to get the attention of sites like this. "Hey, look, we 'could' take your funds if we wanted, so better spend that amount in excess of insurance into the economy and get this thing rolling."

They are just standing with the "club."

Too much scared money was piling up in banks. That's not where it was intended to go when it was created.

I believe these fools believe spend, spend, spend is still panacea. It's all they know.

 

 

Blame Crash's picture

I, like everyone else here, do not have a clue why they wrote it the way they did. My guess is that it means exactly opposite of what's being conjured up by the fevered imaginations on display here. The so called "Bail In" will be coming right off off their hind quarter first and foremost and this is their warning. That's my guess.

I'm going to go with my own God given common sense and state that the Consevative Party of Canada or any of the other political parties are not going to offer up their throats to the Canadian Bankers by stealing peoples savings on their behalf. It just isn't going to happen. No Way and No how!

These banks do not have the pull they have elsewhere. Only individuals can donate to federal political parties, whereas in other parts of the world, especially in the EVil Empire, they own the political parties.

Like I said, IT IS DIFFERNT HERE.

jonjon831983's picture

I first heard of this on SilverDoctor's and in comments section a reader noted back in 2012 there was an article talking about Bail-Ins by the Bank of Canada.

http://www.bankofcanada.ca/2012/01/fsr-article/contingent-capital-and-bail-in-debt/

auric1234's picture

I'm just wondering, is a bank run bullish or bearish regarding the price of the currency relative to other currencies?

Judging from Cyprus events, the markets seem to think it is bearish, However, a bank run forces deleverage, which in turn reduces the money supply, IOW causing a deflation.

Did all these people who drove the EURUSD down just get it backwards? If I'm right, maybe we're in for a short squeeze in the mid-term.

 

Matt's picture

The Troika came up with 10 billion euros for the 'bail-in', presumably funded by debt. The rest of the money is stolen/vaporized deposits. This was all to prevent deleveraging i.e. the collapse of the banks and in turn, corporate and soverieng bonds and the derivatives that sit on top of them. As far as I can tell, more money was created in the Cyprus event; the money that was "destroyed" was destroyed at the time the Greek bonds were restructured.

kchrisc's picture

This is my favorite quote from above: "...[if an] 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..." i.e. we can steal your deposits, that are already stolen, and replenish the capital of the bank's investors.

The funny thing is that depositors place their funds in banks for supposed safe keeping. The banks then steal these deposits and use them for their own gain. When the music stops the depositors get bent-over and the banksters get made whole or walk away laughing all the way to the next bank they start.

Just what guillotines were made for.              hujel

gordsav's picture

   absolutely   dead  on   correct  sir

Tombstone's picture

The majority of Americans could care less about banks having the runs; they have no or little savings to begin with. 

BidnessMan's picture

Yeah, but for the ones who are still working, how long do you think they are going to get a paycheck if their employer's bank balance gets taken / converted into bank stock?  $250K is a trivial bank account balance for any business of any size.  Monthly payroll at my business is $300K a month.  If my company checking account gets stripped down to $250K one weekend, my employees are not getting their next paycheck. 

Considering that the average American is two paychecks away from bankruptcy, the public ought to connect the dots between their employer's bank account balance and getting a paycheck.  Cypress was shut down in the middle of the month.  Will be interesting to see how many Cypriot employees get their monthly paycheck next week.  The big poop has not quite yet hit the fan.

andrewp111's picture

Maybe a small business should rotate funds in and out of Treasuries with Treasury Direct just to keep the deposit balances down.

kaiserhoff's picture

A million dollars is a lot to the paycheck to paycheck crowd, but it's also the monthly float for a midsized restaurant.

Handling money doesn't mean you are making money.  Not anymore.

Fuh Querada's picture

Like all of Reggie's analyses this is incredibly incisive - and self-lauding of its own astuteness - but offers absolutely no solutions whatsoever. Like saying - you have incurable cancer people, I have proved it, haha, good friggin' luck.

Reggie I asked you last time - where do you keep YOUR moaney - assuming you have any ?

gordsav's picture

  30   trillion  in  derivatives   you   witless   cunt   do   the   math      or   find  a   friend  that   can

Matt's picture

Does the 100,000 limit apply to GICs? Is it a seperate limit, so you can have 100,000 in a redeemable GIC and 100,000 in checking? Or are ALL GICs insured (other than ones that are specifically not insured), regardless of limit?

Splitting between banks and using redeemable GICs might be part of a solution, in addition to the usual 90 days cash on hand, sunken boatload of gold and silver strategies. Scarily, Canadian Government Bonds might work as part of the strategy too, since if one bank has to use uninsured deposits to 'bail-in' it could cause panic amongst the remaining banks' customers, forcing them into government bonds.