Part 6 - How Likely Are Bail-Ins? Bank of England Says U.S. “Could Do Today”

GoldCore's picture

Today’s AM fix was USD 1,255.25, EUR 912.05 and GBP 765.49 per ounce.
Yesterday’s AM fix was USD 1,245.75, EUR 906.13 and GBP 757.76 per ounce.

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

Gold rose $21.90 or 1.77% yesterday, closing at $1,262.50/oz. Silver soared $0.53 or 2.67% closing at $20.40/oz. Platinum climbed $15.25, or 1.1%, to $1,386.99/oz and palladium also rose $1.50 or 0.2%, to $735.20/oz.

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

Gold neared a three week high after climbing the most in 7 weeks, on strong physical buying in China and a weak dollar. Gold has recovered from a 5 month low on December 6 to reach $1,268/oz yesterday, its highest price since November 20. Physical demand, especially from Asia seems to be outweighing the jitters regarding the Federal Reserve's much mooted 'tapering'.

Silver in U.S. Dollars, 5 Years - (Bloomberg)

Shanghai Gold Exchange's spot contract, rose for a third day to 15,224 kilograms yesterday showing continuing robust demand in the emerging global economic powerhouse.

Markets may have already priced in the possibility of a December tapering as prices did not show any weakness after last week's stronger than expected non-farm payrolls data. Rather, gold has risen and hedge funds have rushed to cover their short positions ahead of the Fed meeting next week and due to growing concerns of a short squeeze.

However, market participants may again be proved wrong regarding tapering as there is a real risk that the Fed’s $85 billion bond buying programme continues. There is even a chance that the Fed’s bond buying programme increases due to the very fragile U.S. economy. 

The dollar index is trading near a six-week low today as investors evaluate the uncertain outlook for the U.S. economy and dollar in 2014.

BOE Says U.S. “Could Do Today” And U.S Authorities Doing Simulation Exercises
The U.S. already has in place plans for bail-ins in the event of banks failing. Indeed, the U.S. has conducted simulation exercises with the U.K. in recent weeks and will do so again in 2014.

On October 12, Art Murton, the FDIC official in charge of planning for resolutions, and the Bank of England’s Deputy Governor Paul Tucker, both confirmed that the U.S. system is ready to handle a big-bank collapse.

The Bank of England’s Tucker, who has worked with U.S. regulators on the cross-border hurdles to taking down an international firm said that “U.S. authorities could do it today -- and I mean today.” 

The Bank of England

“A global financial system will not survive if we don’t crack this problem”, said Tucker.

The 2010 Dodd-Frank Act empowered the  Federal Deposit Insurance Corp. (FDIC) to seize a company or bank and dismantle it if regulators think a bankruptcy would pose a significant threat to the financial system.

This resolution authority hasn’t been tested, and the FDIC Chairman Martin J. Gruenberg, said his agency will disclose a full description of its approach by year-end -- opening the idea to public comment.

Gruenberg said that China, Switzerland, Germany and Japan are among nations close to reaching arrangements with U.S. regulators with regard to dealing with mechanisms for failed banks.

U.S. regulators are working with German and Swiss counterparts on joint white papers similar to agreements already in place with the U.K. for how banks governed by multiple jurisdictions could be unwound by their host nations, Gruenberg said in remarks prepared for a speech in Washington on October 13. The FDIC will secure memorandums of understanding on bank resolutions with China and Japan soon, he said.

“It is critical that home and host jurisdictions understand well the approach to resolution of their counterpart and work together to develop a cooperative approach,” he said.

Germany and Switzerland share the U.S. preference for a so-called single point of entry, in which the host nation takes over a failed bank’s holding company, imposes losses on shareholders and lets healthy subsidiaries stay open. The approach depends on long term debt held in the parent to absorb losses and capitalise a healthy bridge company, Gruenberg said.

Federal Deposit Insurance Corp. (FDIC)

The agency is consulting with the Federal Reserve on a future rule to set a minimum and importantly it has conducted and is conducting simulation exercises.

U.S. regulators will run simulation exercises with U.K. counterparts this year and in 2014, Gruenberg said.

Gruenberg appeared to warn that the UK was vulnerable to bail-ins when he said that
“Nearly 70 percent of the on- and off-balance sheet assets of our major institutions are held in the U.K,” he said. “There is no close second.”

How Likely Are Bail-Ins?
There are differing opinions as to the severity of the on-going financial crisis, and whether it has turned a corner. There are two very broad ‘schools of thought’.

The first school believes that the U.S. Federal Reserve, along with partner central banks internationally, has successfully stabilised the global financial system through low interest rates and quantitative easing, while the EU has managed to help recapitalise banks and avoid bank insolvencies in the European Union and and the breakup of the European Monetary Union (EMU).

The second school is more skeptical of this view and believes that many banks globally remain vulnerable to insolvency because they are being kept on life-support due to extremely accommodating central bank measures including near zero percent interest rates and quantitative easing. Banks are also being supported through the use of almost fictional, though internationally endorsed, accounting treatment for their asset books, such as mark-to-model valuations for their over-the-counter (OTC) derivatives exposures and by failing to have realistic valuations on problematic property loan portfolios.

Many sovereigns nations remain vulnerable to sovereign debt crises. The Eurozone debt crisis and other sovereign debt crises have been solved for the moment through various forms of ultra loose monetary policies, quantitative easing or debt monetisation.

All short term panaceas have not addressed the root cause of the global debt crisis - too much debt.

Indeed, the concern is that the solution of socialising the debt and transferring it to the sovereign and taxpayers, has simply bought some time and may make the crisis much worse in the long term.

We believe the second school will be proved right in the coming months and years; therefore, depositors with deposits in certain banks, or planning to place deposits, must look at the likelihood of and how likely that bank is to get bailed in.

This likelihood would be a function of the strength of the individual bank, which jurisdiction that bank is governed by, which financial systems and economies the bank is exposed to, the extent to which the bank has potentially problematic property or derivatives exposure, and whether deposits are insured by deposit protection schemes, and to what extent are they insured.

In practice, the financial markets would normally do this analysis, but the previous approach of bail-outs and across the board central bank support appears to have clouded the analysis.

The movement by international monetary and financial institutions towards a bail-in regime and the extent of preparation for bail-ins suggest that bail-ins will happen should banks get into trouble again.

Recent statements by Mario Draghi suggest that depositors might be bailed-in in the future.

In a letter on the July 30th to Joaquín Almunia, the Vice President of the European Commission, Draghi suggested that bondholders might be spared in future, for fear that once burned bond investors may not return.

This would strongly suggest that sovereign governments would be required to make a decision as to whether they would absorb losses or instead force bailins on depositors. As do the preparations being put in place by the Bank of England and the FDIC.

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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ebworthen's picture

They'll do it, under some moniker such as "Preserving the Future of America Fund" or the like.

It will sound something like this: 

"To ensure the safety of your savings and retirement the FDIC will be adjusting your deposit base by 10%.  Rest assured this is not a bail out for banks or corporations but a contribution by every deposit holder to protect the hard earned savings of other depositors.  This shared sacrifice will guarantee your money is safe, and backed by the full faith and credit of the U.S. Government."

Peter Pan's picture

At 1% interest on your savings for the last 10 years, less tax and less inflation, the people of the USA have already been bailed in courtesy of Ben Bernanke without the economy producing any lasting results.

I must admit thought that the TBTF banks which gamed the system have become bigger, little banks have been swallowed up and bank bonuses are better than ever.

CJHames's picture

Peter - less tax and less inflation?  Where?  In Neverland?

Peter Pan's picture

The trick is not to bail out banks by bailing in depositors but to bail out borrowers by bailing in depositors and then letting market rates of interest prevail.

We all know that debt levels are out of hand, that interest rates are way off market rates and that ability to pay off debt is non-existent at present levels.

But everyone needs to understand that bailing in depositors to save banks is about as smart as ripping out bricks from the foundation to build the first floor.

CJHames's picture

Forgive me if I sound ignorant or lack any sound economic theory, for I am a product of the CA education system.  I'm doing the best I can with what I was dealt with.

If we "bail in" any bank with soveriegn monies, aren't we merely transferring the toxic liabillities of the bad bank to taxpayers?  And if the bad bank was previously able to keep their pulse rate from flat lining by going to the Fed or EU window and borrowing the cash they needed at near zero interest, but now govt's must sell bonds and pay 2.5% - or God knows how much more in the future - to cover the banks losses, how in the hell is this going to solve any problem?

Seems like the hole is merely getting deeper to me.



Tall Tom's picture

A Bail In is with your Personal Bank Deposits, your IRA and any other financial instrument that you have entrusted to that Bank.


It has little to nothing to do with Sovereign Monies. It is an outright theft of YOUR Savings and Checking Deposits.


No...The FDIC cannot help you and is no longer a viable Insurance.

Money 4 Nothing's picture

CNBC Told me yesterday that were doing just fine so I don't subscribe to this Mayday alarmist bullshit. 

Mamma always said, intimes of trouble, sit between the toilet and tub, place my fingers in my ears and sing fara shaka par le vue at the top of my lungs.


Serious note.

Yea, their pulling up the circus tent stakes. Their getting ready to go all in and let the underlying crimes begin.

Be safe, and prepare for whatever eventualities you mind can conjure. They have.

Lead, the new PM

Hemp rope, the new industry investment.

Diogenes's picture

What has changed is they've got us by the balls and they know it.

There was a time when everybody got paid in cash and paid their bills in cash and bought things with cash. Many people had no bank account and didn't need one.

If a bank looked shaky it was a simple matter to draw out your cash and not use a bank at all. During the depression many people did this and many banks went broke. It was called a run on the bank.

To prevent this governments enacted laws to prevent banks from engaging in risky behavior, and to protect the depositors from fraud, and to insure depositors against loss.

They don't need that anymore. Everyone gets paid by direct deposit and buys with credit cards and debit cards. Lots of businesses don't even want cash.

You must have a bank account to survive and they know it. Therefore it is possible to take away all protection, all restraint. They can rob you blind and there isn't a damn thing you can do about it.

Except keep your savings in silver dollars and gold eagles, rolled up in a sock under the bed, and keep the minimum amount in the bank. And they know not one customer in a thousand is going to do this. They can clean out everybody's  account and call it a bail in before the sheeple know what hit them.

casfoto's picture

Tonight I heard "wipe the debt clean". For real? After so many people have played by the rules....saved, paid off debt, went by the book, taxed at every turn and I heard wipe that debt clean. Lets wipe out consumer debt clean and push it on to the banks that have caused this fiasco. Even that would be unfair to those that did the right thing. The pensioner in Chicago needs to take out his only shotgun, clean it, load it and go after Rahm Emmanuel and his cronies....including AIG ex president Hank Greenberg who caused this huge problem from the getgo. We the people are paying through the nose for their mistakes.

Beatsy's picture





auric1234's picture

This likelihood would be a function of the strength of the individual bank, which jurisdiction that bank is governed by, which financial systems and economies the bank is exposed to, the extent to which the bank has potentially problematic property or derivatives exposure, and whether deposits are insured by deposit protection schemes, and to what extent are they insured.

So... should I play Russian roulette, or should I buy gold? I'm just not sure what to do.


kaiserhoff's picture

I keep thinking the ruling elite isn't that stupid,

  and they keep proving me wrong.

A bail in, also known as theft, is a form of treason Joe the plumber will understand.  It is also a perfect way to start bank runs and a full blown depression.  It would be madness for a nation which can print money to engage in that sort of self destructive death spiral.

Will they do it?  I make it fitty fitty. Why? Because power corrupts, and they are infinitely greedy bastards.

BigJim's picture

Here's how it will work.

There'll be a bank holiday. Maybe it will happen just after a real or false-flag 'terrorist' attack on the financial system. During this bank holiday, 'our'  governments will announce the bail-ins, and also a conversion of all existing currency to NewBux. Your FRNs/GBP/Yen cash will be useless until you hand them in to get them replaced by NewBux. Maybe the NewBux will be SDRs, who knows. But the banks will be recapitalised with large amounts of NewBux created by the central banks.

In fact - they may not 'bail-in' at all, the NewBux recapitalisation may make it unnecessary.

Of course, the ratio of FRNs to NewBux will be some odd number like 7.34. Price inflation will be immediately evident but the average shmuck won't be able to figure it out because he's used to paying for his bread and circuses with FRNs, and now he pays in NewBux.

A few conspiracy nuts will say that his NewBux only buy half as much, but the governmemnt will say - how can that be, when you got 7.34 NewBux fror every dollar??? And the sheep will be mollified.

novictim's picture

Don't kid yourselves.  

Your guns are worthless...except for shooting yourself or some low paid flunky.  And there are plenty of low paid flunkies ready to step up and fill the vacancies.

And your vote is useless.  Only the 0.1% have the financial means to bend the rules in their direction.



Yes, the financial collapse will be inevitable because policies to efficiently redistribute wealth have not been followed.  Hence, we are on a perpetual cycle of boom and bust and revolt ever since we left the African savannah...

Jethro's picture

I don't subscribe to that.  I've done personal security for some very high ranking people before.  If somebody is truly committed to killing somebody else, they can. Also, if you kill enough of the peons, the price tag on a security detail goes way up, and might even be cost prohibitive.

secretargentman's picture

Makes one wonder how much Con Jorzine must be paying for security. I'm sure he's pretty high up on some folks' hate list.

CJHames's picture

Thanks for cheering me up, Jethro.  You have given me hope.

Shizzmoney's picture

Could they do it? Sure.  Would they have the balls to do so?  Now *that* would be fun to watch*!

*They did this in Cyprus and got away with it.  Why?  Because unlike us, they don't have guns.

Only have in the bank what you need to pay for bills + an emergency cash stack ($200 and up).  The rest you should take out and store in preparation for this.


Lin S's picture

I am with Cathay Bank.  Am I at-risk?  I thought they were doing ok...

mvsjcl's picture

You're fine. We're just talking about all the other banks, not Cathay.

auric1234's picture

You're safe. Just keep entrusting all your wealth to the banksters. Nothing bad will happen. Trust me.


Randoom Thought's picture

Yes, I understand that from a legal perspective, bank deposits are nothing more than an unsecured, but government insured loan. If people understood this then it might change their opinion about the soundness of dealing with banks.

However, it is also quite apparent that banks have gone to lengths to differentiate the public impression of deposits from unsecured loans and to give people the impression that a deposit is money owned and possessed by the depositor, but only held for safekeeping by the bank. It would be hard to convince most people I know of anything otherwise.

Given that there is a vast difference between the legal standing of bank deposits and the common understanding of bank deposits, it seems that minimally every bank that decides to do a bail-in should be considered guilty of fraud and theft AND their executives should be imprisoned without trial or chance of parole in a FEMA camp for a minimum of 10 years. (Why not? Obumbdumb imprisons and executes plenty of people without giving any reason or providing a speedy tria... the triall being guaranteed by the US Constitution)

My guess is that if this was the law, then there would be no bail-ins.

auric1234's picture

If people understood this then it might change their opinion about the soundness of dealing with banks.

But then they would have to understand that the pieces of paper (FRNs) are also issued by a bank and essentially the same thing as bank deposits.


NotApplicable's picture

Your comment matters only from a historical perspective.

Welcome to the "New Normal," comrade.

Winston Churchill's picture

Waste of time and money.

The Iranians,Vietnamese and Chinese seem to have the best deterent.Death with an optional

triat post facto seems to work.

no more banksters's picture

"It is almost certain that, the banksters will laugh this time, with the European Economic and Financial Affairs Council's (ECOFIN) decision, taken about a month ago, concerning the participation of shareholders and depositors in future possible damages of the banks, what they called "bail in". And this because, in such deregulation conditions, banksters will have the opportunity, not only to get away without paying a cent, in a potential banking crisis, but on the contrary, to gain from such a situation according various possible scenarios."

GreatUncle's picture

Since 2008, same economic system produced the same effect with only the injection of liquidity to keep it all turning. NOTHING CHANGED! The only thing that did change is the magnitude of the problem was added too.

When you see, hear and absorb information merging all the underlying economic tones, whisphers, etc. together i  think somebody higher up has realised they can no longer afford to keep traveling down the current path.

Reckon this was always known, just those that be needed to get all their ducks in a row before they acted.

So I look forward to seeing how they intend to keep all this  together seeing as the majority of the population is in fact skint if the demand for payment of all debts is made today.

NotApplicable's picture

What changed dramatically was the flow of wealth commandeered by all of those new dollar/yen/yuan notes.

How will they keep it all together? Massive increase in printing.

As long as we accept these notes for goods and services, it WILL continue.

auric1234's picture

Accepting them is no good if you get rid of them immediately. They want you to hold them. They can't afford the speed of money picking up because that would expose the whole charade.


Uchtdorf's picture

Question: I pay taxes quarterly (1040-ES) for some of my income. Let's say that I dutifully set aside my taxes in a bank account in preparation for the day I should submit the next payment. On the day before I send the funds, the government declares a bail-in and 10% (more?) of those funds vanish from my account. Am I totally without recourse?

CJHames's picture

Of course not.  Just ask the nice IRS agent to wear a condom.  You'll be fine.

"If rape is inevitable, lie back and enjoy it." - Coach Bobby Knight

TheReplacement's picture

Do you have a gun?

Not to worry, this is all part of the plan and the bankers will be hung or beheaded after the next collapse.  What we are seeing now is just the final consolidation.  Things will collapse, .gov will take over, bankers will be branded criminals and dealt with.  Everyone else will be slaves. 



NotApplicable's picture

Bankers will never be branded criminals as long as there's "shifty foreigners" to blame for our problems.

Honestly, it only takes about five minutes of watching the false lefty/righty divide to understand that scape-goats are ALWAYS inserted as the problem, rather than the actual underlying problem itself.

Obfuscation 101.

michael_engineer's picture

Just rehypothecate what you have left several times to cover each area of your expenses and your good.

KnightTakesKing's picture

In that scenario you are screwed. Become your own banker. Keep your own cash in your own vault and/or safe. Use the banking system only for day-to-day expenses.

Deo vindice's picture

@Knight - I have been saying this about banks for years.

Nice to read from someone else who has put it in as succinct a manner as you have.

Pee Wee's picture

Wouldn't a bail in totally drain the swamp and expose the fraud-racket?

This is simply not likely and falls under the laughable.


Pareto's picture

yeah.  Check out the Canadian legislation that was passed last spring mr. laughable.  Actually ZH wrote about it and were the only ones that referenced the actual contents of the legislation word for word.  When you think it can't happen, it invariably does.

secretargentman's picture

Especially when the government promises it won't.

Panafrican Funktron Robot's picture

A bail in would convert deposits into bank common stock.  Tier 1 capital ratio would be largely preserved in this scenario, particularly if, say, the Federal Reserve were to significantly expand QE, or if the banks chose to, say, buyback their own, newly created and diluted common stock using their excess reserves.  

But please, continue thinking this isn't inevitable.  

BigJim's picture

Hey, but wouldn't this be a good thing? We'll ALL become rich, 0.1% banksters!

LynRobison's picture

The banking institutions will be preserved, but your money on deposit there will not. Nothing laughable about that.

Going Loco's picture

Yes, you are probably right. But it is now 5 years since the meltdown and 90% of the people on this board are so fixated on the underlying truth which you describe that they have either missed one of the greatest opportunities for investment in stocks we will see in our lifetimes, or clung to gold as the bulk of their portfolios, or both.

I still read ZH but I now have to apply the same degree of scepticism as I use when reading the MSM. Doom porn is bad for your financial health.

Panafrican Funktron Robot's picture

"missed one of the greatest opportunities for investment in stocks we will see in our lifetimes"

Stocks are down a little over 40% when priced in the only thing that matters, the adjusted reserves, since the March 2009 low.  I am struggling to understand why you believe this represented an opportunity for real gains in actual wealth.

El Vaquero's picture

We all know this shit is doomed.  It's a matter of when.  It should have been 5 years ago, but it wasn't.  I simply choose not to play the game, and instead am working on developing new skills, such as producing food.  Even without financial doom, our farmers are getting older and there will be a fantastic oppertunity for those who can when those farmers start dying or retiring. 

moneybots's picture

"Doom porn is bad for your financial health."


I don't remember people saying that when the nasdaq had fallen 76% or the S&P 57%.



Diogenes's picture

""Doom porn is bad for your financial health."


I don't remember people saying that when the nasdaq had fallen 76% or the S&P 57%."

Exactly. That was the time to buy with both hands or, back up the truck. Anyone who follows ZH and takes it seriously missed the whole run up since March 2009.


Tall Tom's picture

Maybe it might have had something to do with not being a PROSTITUTE and not compromising personal principles for the FRAUDULENT GAINS of robbing the Public Treasury. But some here on ZH have no problem behaving as a unethical whore. They will even justify it.

Cheyenne's picture

The third school knows that the worst asset devalutations, the rocket fuel of the crisis (particularly MBS)--clock in at 0 cents on the dollar because pools of promissory notes were (1) never conveyed to investors (i.e., MBS aren't backed by any mortgages), and/or (2) were "sold" more than once (Bear Stearns was an especially aggressive perp)--is made up of wholly unpunished criminal fraud.

Since no high-level financial executives have been prosecuted, the criminals who caused the crisis are still running amok. Because their crimes have been so profitable, there is 0 reason to believe they've reformed or repented by, for example, committing seppuku, and every reason to think their crimes are being replicated by their peers, who now, 5+ years on, see that they, too, can commit crimes with impunity.

On top of the ongoing evisceration of asset values through criminal fraud, which gets covered up with a trifecta ticket of QE, mark-to-fantasy accounting, and DOJ corruption, we have the fact that Wall Street (which creates nothing real, only fiction and fraud) takes out something like 50-60% of net revenue as compensation. If I recall correctly, (1 - 0.5)^n gets real small, real fast.

A more aggressive form of financial cancer has never been devised, as criminal fraud is rewarded while honesty, integrity, and justice are punished with a vengeance. The people who think all is well are either perps or really, really dumb.

Bottom line: more government-sponsored theft of wealth will arrive with the next, inevitable meltdown, and it will put 2008 in the shade.