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Part 5 - Deposit Confiscation and Bail-In - Where Likely and When?

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Today’s AM fix was USD 1,245.75, EUR 906.13 and GBP 757.76 per ounce.
Yesterday’s AM fix was USD 1,228.50, EUR 895.60 and GBP 749.95 per ounce.

Gold rose $11.90 or 0.97% yesterday, closing at $1,240.60/oz. Silver soared $0.39 or 2% closing at $19.87/oz. Platinum climbed $19.49, or 1.4%, to $1,372.74/oz and palladium edged up $2 or 0.3%, to $733.50/oz.


Gold in U.S. Dollars, 5 Day - (Bloomberg)

Gold edged up to a near one week high today as the dollar weakened and technical support held again prompting funds and investors to allocate funds togold. Given the poor fiscal and monetary state of the U.S., we expect the dollar to weaken in 2014 which should contribute to higher gold prices.

Trading was subdued on the COMEX yesterday as hedge funds and banks turned their attention to the Fed’s policy meeting next week. Volumes in the futures market and the physical market are thin due to little price movement, a lack of news and the wind down in the run up to Christmas.


COMEX Net Long Position - Jan 2006 to Dec, 2013 - (Bloomberg)

There is a risk of a sizeable short covering squeeze after last Friday's U.S. Commodity Futures Trading Commission (CFTC) data showed hedge funds had cut their bullish bets on gold to the lowest since July 2007. This means that the speculative hot money is the least bullish on gold since 2007.

This suggests that recent heavy selling in gold might have run its course and that speculators and weak hand investors have liquidated their positions which are now being held by stronger hands.

The CFTC data showed that hedge funds also raised their bearish bets in gold to near a 7 and a 1/2 year high. This heightens the risk of a short covering rally. The majority of hedge funds are momentum and trend driven and therefore they tend to often get market bottoms and tops wrong.

They frequently go long at market tops and go short at market bottoms and are therefore considered a good contrarian signal.

Where Are Bail-Ins Likely To Take Place
Bail-ins are likely to happen at banks that are close to failure in countries that have adopted the FSB bail-in conventions and or do not have financial resources to bail-out their banks. Thus, deposits in failing banks in G20 nations may be subject to bail-ins.

The total debt to GDP ratios, household, corporate, financial and sovereign debt, in Japan, the UK and the U.S. are all at very high levels. All three countries have banks whose outlook is far from positive.

Many analysts warn that many Wall Street and City of London banks are bigger now than they were prior to the collapse of Lehman.

The Eurozone debt crisis has abated in recent months but many analysts and economists are concerned that it is only a matter of time before the debt crisis returns with Greece, Spain, Portugal, Italy and Ireland all remaining vulnerable.

 

European banks have been recapitalised but should the sovereign debt crisis return or a new global systemic crisis happen, à la Lehman Brothers, individual banks may again face capital shortages.

Greece, Cyprus, Spain, Italy, Portugal and Ireland all remain vulnerable. However, other countries in the EU also have risks, including the UK, the Netherlands, Switzerland, Denmark & France.

A recent paper by Eric Dor of the IESEG School of Management in France, warned how most European governments remain very exposed to their banks, especially France.

The paper computes the total recapitalisation needs of the banking sector of each European country in case of a new systemic financial crisis. It looks at ratios that would represent the increase of public debt, in percentage of GDP, that would result from a recapitalisation of the big national banks by each country.

 

France which would incur the highest cost in percentage of GDP, if the big banks in France had to be recapitalised with public monies. After France, Cyprus, the Netherlands Greece, the United Kingdom and Switzerland are the most vulnerable.

The research highlighted the vulnerability of many large European banks and the capital shortages of these banks in the event of a systemic crisis. Particularly vulnerable banks in each country, according to data compiled by the Center for Risk Management of Lausanne (CRML) and the VLAB of Stern Business School at New York University were (in no particular order):

Stor and his colleagues concluded that:
“The potential capital shortages of the banking sectors of many European countries in the event of a new systemic crisis are very high.”

When Could Bail-Ins Take Place?
The readiness for the bailin regime depends on how quickly each participating jurisdiction implements supporting legislation. Given the recent updates (see below) from a number of regulators and central banks, it appears that they are well positioned to have the necessary legal framework in place to support resolution authorities by about 2015, if not before.

The Financial Stability Board released an updated report in November 2012, titled “Recovery and Resolution Planning: Making the Key Attributes Requirements Operational” requesting input from regulators, supervisory authorities and banking institutions, in which it stated that:

“Reforms are now underway in many jurisdictions to align national resolution regimes and institutional frameworks more closely with the Key Attributes”.

In March 2013, the Reserve Bank of New Zealand stated that it had “been working closely with registered banks for the last two years to put (bail-in) functionality in place”, and intended for the pre-positioning requirements to be in place by 30 June 2013.

The FSB has a Standards Implementation Committee which is currently “reviewing progress on legislating the Key Attributes” and was expected to produce a report by the second quarter of 2013.

EU leaders plan to agree on the ‘Single Resolution Mechanism’ by the end of 2013, for adoption by the European Parliament in 2014, and implementation in January 2015.

The UK and U.S. appear to already have the supporting powers and legislation in place for bail-ins, based on powers granted in the UK Banking Act of 2009 and the Dodd Frank Act of 2010, respectively.

The exact timing of any bank rescue involving a bail-in obviously would then depend on the need for the bank to be rescued.

Emergency resolutions and legislation would be likely in many countries in the event of another Lehman Brothers collapse and another global credit and financial crisis.

Download our Bail-In Guide: Protecting your Savings In The Coming Bail-In Era(11 pages)

Download our Bail-In Research: From Bail-Outs to Bail-Ins: Risks and Ramifications -
Including 60 Safest Banks In The World List 
 (51 pages) 

 


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Tue, 12/10/2013 - 18:24 | Link to Comment el Gallinazo
el Gallinazo's picture

I wonder what the effect of a USA major bail-in in the next crash would have on 90 day T-Bills?  Any ideas?

Tue, 12/10/2013 - 17:52 | Link to Comment Fishhawk
Fishhawk's picture

Careful reading of the FDIC/BofE Position Paper on restructuring TBTF banks (thanks for the cite, I_t_E) shows that the banksters have succeeded in their ultimate plan to achieve control of the industry, with the collusion of government.  The FDIC can now dictate to institutions 'deemed likely to fail' [note: since all banks are insolvent as a business plan, the designation seems one of convenience, to be announced when needed for political reasons] as to what subsidiaries they can operate, what lines of business they can participate in, in short, they can now direct all significant activities of these TBTF, all from a central planning committee (the Politburo/cartel).  We are now approaching the event horizon of bankster hell, a black hole from which no civilization has ever escaped.  And all this is due entirely to the original decision to allow banks to violate contract law with their fractional lending.  We need to hang the lot of them.  Meanwhile, it would appear prudent for individuals to move their assets to somewhere out of the reach of the FDIC, which has morphed into a squid clone.  As for corporations doing business in Federal Reserve notes, get ready to be nationalized, as this bank control is tantamount to full fascist control of all production. 

Fishhawk

Tue, 12/10/2013 - 15:11 | Link to Comment gobsmack
gobsmack's picture

I have an honest question about the mechanics of how bail ins would help the bank.  As I understand fractional reserve banking only a small percentage of deposits are actually on hand with the balance loaned out.  Seizing only this fraction wouldn't seem to get the job done.

Is it the case that they are not just "seizing deposits" but simply repudiating their account agreements and wiping the liability for the full deposits off the balance sheet?  If so I still don't see how since it's still a liability of the bank or at least so I would have thought.  Thanks in advance.

Tue, 12/10/2013 - 15:45 | Link to Comment Withdrawn Sanction
Withdrawn Sanction's picture

When banks' assets fall in value, as they would in say, a sovereign debt crisis, one way for a bank to remain solvent (the condition where assets > liabilities) is to mark down its liabilities.  In short, a bail-in forces depositors to "eat" part of the banks' asset losses.  It's essentially no different than the conditions prevailing before deposit insurance.  Since today the deposit insurance funds are insufficient to cover losses, we're back to where we started.

Word to the wise:  move your money while you still can.  If you bank w/a TBTF institution in the US or Europe, you're asking for it.

Tue, 12/10/2013 - 15:32 | Link to Comment Its_the_economy...
Its_the_economy_stupid's picture

Sorry, no spoon feeding. Get an education here,

 

http://www.fdic.gov/about/srac/2012/gsifi.pdf

Tue, 12/10/2013 - 16:05 | Link to Comment gobsmack
gobsmack's picture

I have scanned this and it is fascinating, just want I wanted to know, thanks. 

Tue, 12/10/2013 - 12:58 | Link to Comment TyrannoSoros Wrecks
TyrannoSoros Wrecks's picture

Worthless article.
"Where will bail-ins occur?" In countries with bank problems
"When will bail-ins occur?" Before 2015 or after

Thanks for nothing.

Tue, 12/10/2013 - 12:42 | Link to Comment xavi1951
xavi1951's picture

You can keep your savings if you like it.

Tue, 12/10/2013 - 12:31 | Link to Comment bahallua
bahallua's picture

If the sheeple does not get their act straight, they will get their monies stolen. It will not be the first time. However, the problem goes much deeper than just a monetary "haircut" - More people needs to realize that fiat is just a tool by which people has been subjected and modernly-enslaved. People needs to realize that bankers also take shits, die and should be in jail.

Those taints desperately need karma to catch up to them.

Tue, 12/10/2013 - 19:05 | Link to Comment Jendrzejczyk
Jendrzejczyk's picture

+20 for "taints"

Tue, 12/10/2013 - 11:59 | Link to Comment itchy166
itchy166's picture

I wonder how Bitcoin will do during the next round of bail-ins? 

Tue, 12/10/2013 - 12:38 | Link to Comment bahallua
bahallua's picture

More will see it as an alternative to circumvent the control mechanism that will become very apparent once shit hits the fan and mobility of small capital is restricted. For god the sakes the other day, I tried to send 2k out of the US and I was ask for my ID and ocupation.

Banks steal and launder billions left and right and are too big to prosecute! -- Well... I think there is a lot of room for cryptocurrencies in these picture.

 

 

Tue, 12/10/2013 - 19:01 | Link to Comment Jendrzejczyk
Jendrzejczyk's picture

+1

"For (G?) god's sake" is probably what you're looking for.

Just trying to be helpful; not an ass.

Tue, 12/10/2013 - 11:19 | Link to Comment FredFlintstone
FredFlintstone's picture

I would think that this has to be a coordinated effort. The governments all need to get the legislation in place so that when the initiating event occurs, it can all be implemented at one time so that you cannot escape its reach.

Tue, 12/10/2013 - 18:38 | Link to Comment Debeachesand Je...
Debeachesand Jerseyshores's picture

In other words,there will be a worldwide confiscation of assets from private citizens etc all on the same day.

 

Hmmmm, gives new meaning to a round robin fucking.

Tue, 12/10/2013 - 12:25 | Link to Comment layman_please
layman_please's picture

Working on it. Don't you worry.

"EU leaders plan to agree on the ‘Single Resolution Mechanism’ by the end of 2013, for adoption by the European Parliament in 2014, and implementation in January 2015."

Tue, 12/10/2013 - 10:15 | Link to Comment Hey Assholes
Hey Assholes's picture

Governments are criminal gangs of murderers, thieves, thugs, and spies.

All governments.

They are the enemy of free people.

Tue, 12/10/2013 - 10:48 | Link to Comment shovelhead
shovelhead's picture

0 points for originality.

Dig deeper.

Tue, 12/10/2013 - 12:06 | Link to Comment quasimodo
quasimodo's picture

Did you hear? The shutdown is over, go back to your assigned spot

 

Tue, 12/10/2013 - 12:29 | Link to Comment CheapBastard
CheapBastard's picture

"Possession is 100% of the law."

"If you don't hold it, you don't own it."

There.

Tue, 12/10/2013 - 15:03 | Link to Comment Bagbalm
Bagbalm's picture

And can hide it or defend it.

Tue, 12/10/2013 - 10:01 | Link to Comment optimator
optimator's picture

Don't be alarmed, they will let you know well in advance so you can get your money out.  Sure.

Tue, 12/10/2013 - 22:07 | Link to Comment wintermute
wintermute's picture

Bail-In threats.

Bitcoin user not affected.

 

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