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9 Key Considerations To Protect Deposits From Coming Bail-Ins

GoldCore's picture




 

Today’s AM fix was USD 1,222.75, EUR 891.22 and GBP 750.89 per ounce.
Yesterday’s AM fix was USD 1,243.50, EUR 902.79 and GBP 758.51 per ounce.

Gold fell $26.40 or 2.11% yesterday, closing at $1,226.50/oz. Silver slid $0.79 or 3.89% closing at $19.52/oz.  Platinum dropped $19.01, or 1.4%, to $1,360.74/oz and palladium fell $20 or 2.7%, to $715.25/oz.

Gold has spiked higher in late morning trade in London and is 0.6% higher on the day and 0.35% higher for the week. A higher weekly close this week will be positive from a technical perspective.


What Should Depositors Do To Protect Against Bail-In? 9 Key Considerations

Gold saw a sharp move lower by over 2% yesterday, despite little market moving data or news and other assets seeing less price movement. The price fall could have been due to heightened speculation of a Fed taper as soon as next week. However, if that was the case, one would have expected stocks to have seen similar price falls. Rather stocks were only marginally lower and remain near record highs.


Gold in U.S. Dollars, 10 Day - (Bloomberg)

Peculiar gold price falls have been common in recent weeks and months and have contributed to the 25% price fall we have seen this year.
Therefore, those who have diversified into gold in order to protect their wealth will welcome the move by the German financial regulator Bafin to widen their investigation into manipulation by banks of benchmark gold and silver prices.

The FT reports on the front page today that German banking regulator Bafin has demanded documents from Germany's largest bank, Deutsche Bank, as part of a probe into suspected manipulation the gold and silver markets by banks.


Gold Prices / Fixes / Rates / Volumes - (Bloomberg)

Currently, gold fixing happens twice a day by teleconference with five banks: Deutsche Bank, Bank of Nova Scotia-ScotiaMocatta, Barclays Bank Plc, HSBC Bank USA, NA and Société Générale. The fixings are used to determine prices globally. Deutsche Bank is also one of three banks that take part in the equivalent process for silver.

The German regulator has been interrogating the bank's staff over the past several months. Since November, when the probe was first mentioned similar audits in the U.S. and UK are also commencing.

Premiums in China and India remained robust overnight and way over western premiums. Gold on the Shanghai Gold Exchange closed at $1,258.38 at 0700 GMT - a premium of $29.18 per ounce over spot.

Bullion premiums in western markets have seen little movement again this week. One ounce gold bars are trading at $1,276.44/oz or premiums of between 3.75% and 4.5%, and larger 1 kilo  gold bars  are trading at $40,832/oz or premiums of between 3% and 3.5%.

Indian demand declined yesterday but remains robust as dealers were not able to source gold.

Premiums remained steady at $120 per ounce over London prices. Last week, Indian premiums hit a record high of $160/oz. Imports into India have dropped off sharply this year after the Indian government raised the import duty to 10% earlier this year and tied imports volumes to exports, in a bid to curb a rising trade gap and the rush to gold by Indians concerned about the continuing devaluation of their rupee.

If the Fed defer a taper, we should see gold bounce from oversold levels which could help it test $1,300/oz again.

We do not believe the Fed will 'taper' next week as the U.S. economy remains very fragile and any reduction on bond purchases could lead to turbulence in financial markets, a rise in bond yields and affect the wider economy.

But if the Fed does reduce its massive bond buying programme marginally next week, gold will likely fall to test strong support at $1,200/oz again.

Gold looks likely to bounce back next year and the positive drivers for gold are strong store of wealth physical demand, particularly in China, due to macroeconomic, systemic and monetary risk.

The eurozone debt crisis is far from resolved and sovereign debt issues in Japan, the UK and the U.S. will likely rear their ugly heads again leading to safe haven demand for gold.


U.S. Treasury Amount of Outstanding Debt - Price/Billion - (Bloomberg)

We pointed out yesterday why it is important to remember that the Federal Reserve is printing nearly $20 billion every single week. The U.S. National Debt is now over $17.2 trillion and continuing to rise and the U.S. has unfunded liabilities (Social Security, Medicare and Medicaid) of between $100 trillion and $200 trillion.

Staggering numbers which suggest alas that the U.S. politicians are rearranging chairs on the titanic.

What Should Depositors Do To Protect Against Bail-In?
Depositors in G20 or FSB regulated countries should examine the financial health of their existing bank or banks.

Some issues to watch would include institutions with legacy issues such as a high level of non-performing loans, a possible need for recapitalisation and low credit ratings. These banks should be avoided, as they have a higher chance of needing restructuring and hence a higher chance of a bail-in.

Deposits are insured for up to €100,000, £85,000 and $100,000 per person, per account in the EU, the UK and the U.S. respectively. Although there is no guarantee that an insolvent government will be able to fund its deposit insurance scheme, it is uninsured deposits which are more at risk of a bail-in.

Therefore, it would be prudent for depositors not to hold bank deposits in excess of these figures in any one financial institution since -
a) they are not insured, and
b) deposits in excess of those arbitrary figures are more likely to be bailed in

There is an assumption that in the event of bail-in, only bank deposits of over these arbitrary figures would be vulnerable. However, there is no guarantee that this would be the case. Should a government be under severe financial pressure, it may opt to only protect deposits over a lower amount (e.g. €50,000, £50,000, $50,000).

Since capital controls have already been imposed on one Eurozone country, Cyprus, it seems quite likely that they will be imposed in other countries in the event of new banking crises or a new global systemic crisis.

Cypriot authorities imposed restrictions on bank money transfers and withdrawals, including a daily cash withdrawal limit of €300 per day. Many banks had to restrict withdrawals to €100 per customer per day in order to prevent them running out of euros. Electronic wire transfers were suspended for a number of days, prior to being allowed but with a low maximum daily limit.

Therefore, having some of one’s savings outside of the banking system makes sense. It should be held in a form that is highly liquid, such as gold, and can be converted back into cash in the event of cash withdrawal restrictions. Cypriots who owned gold were less affected by the deposit confiscation or ‘haircut’ as they could sell their gold in order to get much needed euros.

In the coming years, the role of gold in an investment portfolio will become more important due to its academically and historically proven safe haven qualities. Now, with the risk of bail-ins, savers and corporate treasurers should consider diversifying their savings portfolio and allocate 5% to 10% of the overall savings portfolio to gold.

However, it will not be enough to simply allocate funds to some form of gold investment. In the same way that certain banks are more risky than others, so too are many forms of gold speculation and investment more risky than others.

It is vitally important that those tasked with diversifying deposits do not jump out of the frying pan and into the fire.

An allocation to actual physical gold owned with the safest counterparties in the world will help depositors hedge the not insignificant risk of keeping money on deposit in many banks today.

It is important that one owns physical gold and not paper gold which could be subject to bail-ins.

Physical gold, held in allocated accounts conferring outright legal ownership through bailment
remains the safest way to own gold. Many gold investment vehicles result in the buyers having very significant, unappreciated exposure and very high counterparty risk.

Owning a form of paper gold and derivative gold such as an exchange traded fund (ETF) in which one is an unsecured creditor of a large number of custodians, who are banks which potentially could be bailed in, defeats the purpose of owning gold.

Potentially, many forms of gold investment themselves could be bailed in and the FSB’s inclusion of Financial Market Infrastructures in potential bail-ins including “central counterparties, insurers, and the client assets held by prime brokers, custodians and others” underlines the importance of owning unencumbered assets that are owned directly.

Extensive research shows that owning gold in an investment portfolio enhances returns and reduces the entire portfolio’s volatility over the long term. In the coming years, a diversified savings portfolio with an allocation to gold, will reduce counterparty risk and compensate for very low yields.

The wise old Wall Street adage to always keep 10% of one’s wealth in gold served investors well in recent years. It will serve those attempting to safeguard deposits very well in the coming years.

In general, people should avoid holding euros or other cash outside of their bank accounts, however there is now a case to be made that holding a small amount of cash outside of vulnerable banks would be prudent. Just enough cash to provide for you and your family’s needs for a few weeks.

However, this should never be done unless the cash is held in a very secure way, such as a well hidden safe or safety deposit box. It would be safer not to keep assets in a safety deposit box in a bank.

Overall, diversification of deposits now has to be considered.

This means diversification across financial institutions and across countries or jurisdictions globally.

Safest Banks
Financial institutions should be chosen on the basis of the strength of the institution. Jurisdictions should be chosen on the basis of political and economic stability. A culture and tradition of respecting private property and property rights is also pertinent.

While depositors need to do their own due diligence in which banks globally they may wish to open a bank account, Table 1 (see From Bail-Outs to Bail-Ins: Risks and Ramifications)  illustrates that there are numerous banks globally which are still perceived to be financially strong. The banks in table 1 have been ranked by taking the average long term issuer credit rating applied to the bank by the main global credit rating companies, Moody’s, S&P and Fitch.

A credit rating is an assessment of the solvency or creditworthiness of debtors or bond issuers according to established credit review procedures. These ratings and associated research help investors analyse the credit risks associated with fixed income securities by providing detailed information of the ability of issuers to meet their obligations. A rating is continuously monitored. It enables investors and savers to measure their investment risk.

Long term credit ratings of the major agencies take into account factors such as financial fundamentals, operating environment, regulatory environment, corporate governance, franchise value of the business, and risk management, as well as the potential financial support available to the bank from a parent group, or a local or national government.

While credit ratings express an opinion on a bank’s vulnerability of defaulting, they don’t quantify the probability of default. However, credit ratings are still widely used and are one of the most commonly used ways of ranking the relative financial strength of banks.

The credit rating reflects the credit risk or general paying ability of the issuer, and so reflects the solvency or creditworthiness of the issuer from the point of view of investors who, along with depositors, are the main creditors of the bank. Certain countries host more financially strong banks than others as can be graphically seen in the table.

Notice that many of the safest banks in the world are in Switzerland and Germany.

Indeed, it is interesting to note that despite the Eurozone debt crisis, many of the safest banks in the
world are in the EU or wider Europe. These include banks in the Netherlands, Luxembourg and France - despite many French banks being very vulnerable as is the French sovereign.

Outside of Europe, Singapore has some very strong banks, as does Norway, Australia, Canada and Sweden.

There are only a few UK and U.S. banks on the list of global top banks that should give pause for thought.

There are a number of institutions in jurisdictions such as Hong Kong, Chile, Japan and some Middle Eastern countries. As of yet, banks in the large emerging markets have not made their mark but we would expect banks in China, Russia, Brazil and in India to begin moving up the table in the coming years. The sounder sovereign position and lack of public and private debt in these countries will help in this regard.

There are no banks from problem European economies on the list for good reason. Their banks do not have high enough credit ratings. In fact, banks from Cyprus, Greece, Portugal, Spain, Italy and Ireland consistently had relatively low long term ratings from the ratings agencies. In terms of ratings, they rank nowhere near the top 20 banks in the world and most are ranked between 200 and 400.

Besides considering the relative safety of different banks, with interest rates so low on bank deposits and increasing taxes on interest earned on deposits leading to negative real interest rates - depositors are not being rewarded with adequate yields to compensate for the risk to which they are exposed.

Thus, as is often the case, savers need to consider alternatives to protect their wealth

Without a clearly thought out plan, many will be prey for the financial services sales machine and brokers and their array of more risky investment and savings products - including so called “capital guaranteed” products - many of which are high risk due to significant and unappreciated counterparty risk.

It is vitally important that investors have independent custodians and trustees. This greatly reduces counterparty risk should a broker, financial adviser, insurance company or other financial institution become insolvent.

9 Key Considerations
Depositors internationally should examine the financial health of their existing bank or banks. Overall, diversification of deposits now has to be considered. However, it is vitally important that those tasked with diversifying deposits do not jump out of the frying pan and into the fire. This means diversification across financial institutions and across countries or jurisdictions globally.

Financial institutions should be chosen on the basis of the strength of the institution. Jurisdictions should be chosen on the basis of political and economic stability. A culture and tradition of respecting private property and property rights is also important.

1. Diversify savings across banks and in different countries

2. Consider counterparty risk and the health of the deposit-taking bank

3. Attempt to own assets outright and reduce risk to custodians and trustees

4. Own physical gold in allocated accounts with outright legal ownership

5. Avoid investments where there is significant counterparty risk, such as exchange traded
funds and many structured products

6. Avoid banks with large derivative books and large mortgage books

7. Monitor banks’ and institutions’ financial stability

8. Monitor deposit and savings accounts’ terms and conditions

9. Monitor government policy pertaining to banks and bank deposits
 
Download Protecting your Savings In The Coming Bail-In Era (11 pages)

Download From Bail-Outs to Bail-Ins: Risks and Ramifications -  Includes 60 Safest Banks In World  (51 pages)

 

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Sat, 12/14/2013 - 14:35 | 4246672 steveo77
steveo77's picture

Interesting FACT Tiger Shark attacks in Hawaii up 400% since Fukushima Hmmmmm.....not a good idea to kill the food chain in the HOME PLANET's largest ocean, there will be repercussions. I used to dive Maui all the time, spear fish, gather crabs and lobsters at night. Sheesh, many of the Tigers are exactly where I used to dive in Makena Maui http://nukeprofessional.blogspot.com/2013/12/apex-predators-in-hawaii-ar...

Sat, 12/14/2013 - 09:47 | 4246249 Shadow750
Shadow750's picture

The US FDIC and the Bank of England have written a joint paper on bail ins/outs. Included in this is the concept of allowing deposit guarantee scheme funds to be used to support the use of resolution tools, including bail-ins.  In other words, the FDIC money intended to go to the savings account holder could be redirected to the bank insteand.  So much for the deposit guarantee.....

See the details  and links to the original paper at:  http://www.brokenmirrors.ca/?p=411

Sat, 12/14/2013 - 12:14 | 4246422 logicalman
logicalman's picture

All the deposit insurance 'schemes' are massively under funded.

They are just there so those who bellieve in them (the un/mis informed) will sleep well at night.

I think a rude awakening is just around the corner

Sat, 12/14/2013 - 15:31 | 4246783 andrewp111
andrewp111's picture

The US Congress can issue dollars directly to make good on its $250K/person per bank deposit insurance. So can the British parliament. The individual States of the Eurozone cannot. This is why I have more faith in deposit insurance in the USA than in the EU.

Sun, 12/15/2013 - 23:33 | 4249572 MrSteve
MrSteve's picture

The $250K per person goes away 12/31/2013.

Sat, 12/14/2013 - 04:28 | 4246090 Kina
Kina's picture

I don't trust deposit insurance.

 

Been trying to set up term deposits in different banks. You would think they would fall overthemselves to help....but the determination to remove humans out of banking and rely on automate processes is fucked. Exchanged a dozen emails with NAB and ANZ just trying to set up a basic term deposit... and still nothing done.... both totally useless. 

 

DId the Obam0-care programmers set up Australia's on-line banking sites?

Sat, 12/14/2013 - 12:15 | 4246424 logicalman
logicalman's picture

I don't trust banks.

Sat, 12/14/2013 - 09:45 | 4246245 Shadow750
Shadow750's picture

You should be worried about deposit insurance.  The US FDIC and the Bank of England have already written a joint paper on such things. They have stated that deposit insurance money could be given to the failing bank to bail it out rather than give it to the consumer.  Scary stuff and not a work of fiction.

For details on this see:  http://www.brokenmirrors.ca/?p=411

Sat, 12/14/2013 - 02:22 | 4246004 pupdog1
pupdog1's picture

"Deposits are insured for up to €100,000, £85,000 and $100,000 per person, per account in the EU, the UK and the U.S. respectively."

 

Uhhhhh...  $100 k in the US ??

Sat, 12/14/2013 - 15:37 | 4246788 andrewp111
andrewp111's picture

A glaring error in the article. I noticed that too. the FDIC insures $250K/person per bank, and the statute says it is backed by the full faith and credit of the USA.

And a nice alternative to bank deposits is the US Treasury itself. 

http://www.treasurydirect.gov

 

 

Sat, 12/14/2013 - 01:47 | 4245952 zebrasquid
zebrasquid's picture

I like Forever stamps...they won't come after them and they will keep up with inflation.
Of course, if the P.O. goes out of business....

Fri, 12/13/2013 - 22:32 | 4245586 NIHILIST CIPHER
NIHILIST CIPHER's picture

To use the term "safest bank" seems somehow careless in light of the past 6 years.

Sat, 12/14/2013 - 01:39 | 4245948 zebrasquid
zebrasquid's picture

Safe bank = Jumbo shrimp

Sat, 12/14/2013 - 02:26 | 4246009 Deo vindice
Deo vindice's picture

"safest bank" = most trustworthy thief.

Fri, 12/13/2013 - 21:48 | 4245473 derryb
derryb's picture

or, just simply dump your bank and move your money to a local member owned credit union.

Good reading on QE and bail ins:

http://www.safehaven.com/article/32107/taper-and-quantitative-easing-reality-check

Fri, 12/13/2013 - 18:49 | 4244973 moneybots
moneybots's picture

"The banks in table 1 have been ranked by taking the average long term issuer credit rating applied to the bank by the main global credit rating companies, Moody’s, S&P and Fitch."

 

Can those ratings even be trusted after junk mortgages were rated AAA?

 

 

Fri, 12/13/2013 - 19:43 | 4245140 MrSteve
MrSteve's picture

Precisely : ! : ranked according to whom, to what standard, by what criteria? There are more holes than I would ever want to evaluate in this article. Do your own due diligence and start by ignoring this article.

Fri, 12/13/2013 - 19:32 | 4245108 SilverIsKing
SilverIsKing's picture

If I was inclined to leave my money in the bank, I would leave it in a safety deposit box.  Why put your cash at risk of bail-in in exchange for 0.1% interest which may become -0.1% interest real soon?

 

 

Sat, 12/14/2013 - 15:02 | 4246675 Things that go bump
Things that go bump's picture

So sorry, but you may not have access to your safety deposit box unless a treasury agent is present, which was what happened when Roosevelt made it illegal to own gold. Your cash would be confiscated and only returned to you (probably only in part) once you had proven not only ownership, but that it was legally acquired. Prying it away from the government once they got their hands on it would, I am sure, be difficult in the extreme, not to mention the unwelcome and probably extreme scrutiny they would put you under. They would probably drag their feet until you were long dead and your heirs had given up the fight. If they go the route of confiscation, which they are bound to do eventually, they will be sniffing around for anything of value that anyone possesses.

Fri, 12/13/2013 - 18:40 | 4244949 nmewn
nmewn's picture

4. Own physical gold in allocated accounts with outright legal ownership.

Legal ownership, in a banana republic? I'm gonna need that defined a little more tightly.

5. Avoid investments where there is significant >>>counterparty risk<<<..."

But I digress.

Fri, 12/13/2013 - 17:55 | 4244774 el Gallinazo
el Gallinazo's picture

Did the people of Cyprus really get their Euro 100K from the insurance without any foot dragging.  I never read any follow-up to this.  Anyone know for sure?

Also, Lynch America structured their debt a couple of years ago so that the holders of $30T of derivatives have greater seniority than the $!T of the depositiors in BoA.  Not a chance that the depositors will get a red cent when it goes belly up.  Will the Fed print the money to give to the Treasury to give to the FDIC to pay the insurance?  Only the Rothschilds know for sure.

Deposits are insured for up to €100,000, £85,000 and $100,000 per person, per account in the EU, the UK and the U.S. respectively.

The FDIC limit per account of USD250,00 was made permanent by legislation in July, 2010.  Hope this guy knows more about gold than deposit insurance.

Sat, 12/14/2013 - 15:47 | 4246804 andrewp111
andrewp111's picture

If big banks fail it won't be up to the Fed to decide whether to print the dollars or not. Congress has the power to issue the dollars directly if they choose to do so. I think the politicians would have such holy hell to pay if they failed to honor deposit insurance that any Congress would make sure it was honored.

Now, they might impose punitive taxes afterward, but they would honor the deposit insurance.

Cyprus does not control its own currency and has no way to make good on deposit insurance without the good graces of its Euro masters.

Sat, 12/14/2013 - 00:55 | 4245881 bonin006
bonin006's picture

Not as of May 10, 2013:

http://neoskosmos.com/news/en/Cyprus-capital-controls-to-remain-in-place

I couldn't find anything newer - guess Cyprus is old news now. Anyway, it looks like the deal is, your bank account says you have the money, but you can't take out more than 100 to 300 a day. Iceland still has these controls 5 years on, after initially claiming they would last days or weeks. To paraphrase: "you can't have access to all of you money until confidence in the system is restored"

Sat, 12/14/2013 - 09:06 | 4246218 Greshams Law
Greshams Law's picture

I think you've got the right idea. Depending on either the goodwill of the bank or FDIC insurance is silly.

Besides, isn't FDIC insurance only applicable in the event of bank failure? In a bailin, the bank doesn't fail. So no soup for you, come back never!

Fri, 12/13/2013 - 23:35 | 4245722 edotabin
edotabin's picture

Yeah but with devaluation 250k will equal about 100k anyway.....

Fri, 12/13/2013 - 18:14 | 4244849 Praetorian Guard
Praetorian Guard's picture

Not that I am aware of. I know a few business people who got their "clock cleaned" and have since left the country...

Fri, 12/13/2013 - 17:29 | 4244680 falak pema
falak pema's picture

the tenth commandment; all 9 others don't count when the tsunami hits you. 

Fri, 12/13/2013 - 17:27 | 4244675 no more banksters
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."

http://failedevolution.blogspot.gr/2013/07/why-banksters-laugh-with-rece...

Fri, 12/13/2013 - 17:23 | 4244650 Praetorian Guard
Praetorian Guard's picture

Ok, let me see if I understand this, after reading the same damn thing in EIGHT parts... bail ins bad, gold and silver good? Tell me, if the CB's are going to go balls out and implement this on a massive scale (I'm not talking about isolated Cyrus - but the entire Western world, and possible globe for that matter), what in gods green earth makes you believe that they will not target PM's or other financial instruments? Do you honestly think they will call it a day after they scalp fiat? If you do, you are sadly mistaken... good luck on your bad info...

Fri, 12/13/2013 - 17:20 | 4244633 novictim
novictim's picture

So, let us say that one could really protect all the wealthy folks from "bail-ins", inflation, taxation, etc.

 

Who will protect them from the starving masses?  What portfolio will one choose that could deflect a simple pitch fork to the face, mouth and eye sockets?  Or a flaming bucket of pitch and chicken feathers from scorching that Dormeuil tailored suit and underlying flesh right off the bone?

 

You folks need to study a little history.

Sat, 12/14/2013 - 09:59 | 4246257 Matt
Matt's picture

Mercenaries. Maybe you need to study a little history. There were good chunks of (western) history when the only armies were private armies.

Fri, 12/13/2013 - 18:46 | 4244965 FredFlintstone
FredFlintstone's picture

Bring it

Fri, 12/13/2013 - 18:35 | 4244923 Praetorian Guard
Praetorian Guard's picture

Spot on! Excellent.

Fri, 12/13/2013 - 17:12 | 4244607 mrdenis
mrdenis's picture

Safest bank in the USA is Bank of North Dokata ......not FDIC insured ...

Sat, 12/14/2013 - 09:31 | 4246237 GetZeeGold
GetZeeGold's picture

 

 

The lone junkster is not amused by that comment.

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