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JPMorgan: Opening "Pandora's Deposit Box" Means "More Extreme Deposit Flights In Future Crises"
There are three key highlights in yet another take on Cyprus, this time from JPMorgan's Robert Henriques: the first, and most obvious, is that "more extreme scenarios of burden-sharing will not necessarily reinforce investor confidence" - that much is clear; the second, as we pointed out over the weekend, is that what happened in Cyprus is a "the death knell for an EU Common Deposit Guarantee scheme, which was to be an integral part of the Banking Union proposals" - so much for the key part of European monetary and fiscal integration. But the third, and most important, is that "we would expect future crises to be exacerbated by more extreme deposit flight. This would likely mean the ECB would have to increase its presence as liquidity provider of last resort, which, under normal circumstances, would lead to increased asset encumbrance and lower recoveries for senior debt." The problem for Europe, as diligent readers know too well already, is that asset encumbrance is already at record high levels, meaning the ability to find "free" assets used to create new loans will be next to impossible.
Then again, the market is nearly green, and the DJIA is just shy of all time highs once more, so all must be well.
From JPMorgan:
Opening Pandora's Deposit Box
In our opinion, there are likely to be several broad impacts as a result of the decision to impose a tax on the deposits held by the Cypriot banking system. In the first instance, we think that this is testament to the fact that EU policymakers are willing to contemplate more extreme measures in the always difficult process of balancing sovereign and bank solvency. We recall that it was not too long ago when EU policymakers were agonizing over the decision to impair senior unsecured bondholders, we now move to a situation where the depositors are now being forced to participate in what we think is a burden-sharing exercise in all but name. Ironically, while bondholders may be saved from burden sharing in this exercise, we expect that having more extreme scenarios play out will not necessarily reinforce investor confidence, with the implementation of the EU’s RRD (Resolution & Recovery Directive) being a fast-approaching milestone. At the very least, we think that this places pressure on policymakers to push forward with the 2015 implementation date with no delay, to give a common framework for future bank bail-outs that will avoid ad-hoc outcomes such as the expropriation and depositor “Taxes”.
An immediate consequence of the decision to impair the deposits within the Cypriot banks, is that this will be the death knell for an EU Common Deposit Guarantee scheme, which was to be an integral part of the Banking Union proposals. Clearly, in a scenario where insurer deposits, i.e. below the €100k threshold, can be impacted by a one-off tax such as in Cyprus, the effectiveness of such a deposit guarantee will be clearly undermined. What is an even greater concern is the fact that depositors can become part of the equation in solving a banking crisis in extreme circumstances, although we appreciate that this may have been driven by the unique liability structure of the Cypriot banks, in addition to the origin of the off-shore deposits. We note that a common deposit guarantee scheme would have been designed to reinforce and stabilize depositor confidence whilst a bank or banking system was being subject to a resolution outcome. Our major concern is that with this action, one of the stabilizing instruments will have been completely undermined in the current process and, in future, we may see a very strong reaction in deposit flows in the event that a banking sector may experience stress. In the event that a run on deposits becomes a more feasible outcome, we think that this places a greater onus on the ECB to provide liquidity.
An additional concern is the subversion of the order of subordination, with depositors, who were ostensibly ranking pari passu with bondholders at worst, suddenly finding themselves having a worse outcome than more subordinated liability holders, albeit with limited amounts of subordinated debt outstanding. We think that this reinforces the need for a rapid implementation of the RRD, which would avoid such outcomes and give investors greater certainty as to where they stand in the liability structure.
A Question of Contagion
In terms of the overall market impact, the key issue will be the element of contagion among the peripheral banking sectors, where there may still be some residual concerns with regard to solvency and where strained sovereigns have very limited scope to provide further taxpayer resources. In the event that we had to note strong deposit flows in those jurisdictions, we think that this would undermine broader investor sentiment. We note that while the markets themselves may appreciate the unique circumstances that drove the decision-making process in Cyprus, it remains to be seen how well that translates to retail depositors elsewhere in the periphery.
Deposits become a little bit less sticky
We note that there was a significant level of deposit out flow following the Spanish banking crisis; however, it was likely that this was somewhat mitigated by the expectation that depositors would be spared any loss outcomes. Indeed, following the recapitalization plans of the Spanish banks post the stress tests, we have seen depositor recovery. Whilst the direct impact is limited from a Cypriot deposit tax, we highlight this undermines the safety of insured deposits when there is another crisis. As such, we would expect future crises to be exacerbated by more extreme deposit flight. This would likely mean the ECB would have to increase its presence as liquidity provider of last resort, which, under normal circumstances, would lead to increased asset encumbrance and lower recoveries for senior debt. We note that ECB secured borrowing is expected to be exempt from the RRD proposals.
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You don't say.
EUR 1.2 by Summer's end - perhaps, that's exactly what the Germans want.
Capital controls will fix that.
Capital controls d.b.a. "RRD."
Funny how the only solution is ever more integration.
Color me shocked.
Meanwhile, I've yet to find a single person at work today that's even heard about the "bailout."
Strange how JPM being a bunch of liars is off the front page due to Superstorm Cyrpus which kicked off within 48 hours of the Senate findings.
And it looks like Cyprus is getting up a head of steam:
http://rt.com/business/putin-cyprus-levy-unfair-424/ “unfair, unprofessional and dangerous,” Putin said...
http://www.foxnews.com/world/2013/03/18/cypriots-rush-to-pull-money-from...
Look! Over there!
i'd wager that v.putin had some "savings" stashed in cyprus banks as well; otherwise, him being an ex-kgb, the term "unfair" should not even be in his vocabulary
"more extreme scenarios of burden-sharing will not necessarily reinforce investor confidence"
So, privatized gains and socialized losses are "burden-sharing", eh?
In any event, the correct way to read the above statement is: "If you're going to panic, panic first". I panicked quite a number of years ago, and so learning of these seizures of private property neither surprise me not shock me one bit.
I can't hear you through the sounds of March Madness.
The ones that I have infected with my way of "thinking" have all seen this as being a major new boundary being crossed.
There is always hope.
pods
Hedgleless please tell me why JPM would put out a piece about opening pandora's box and deposit flights? If the banks were truly worried about that, that is the last thing they would be doing.
This reeks of bullshit. They are trying to cause a crisis that can only be cured by money printing. The ECB wants to turn on their machine and join the party.
sounds right.
Yep, and it may give Fed the room to ease off the foot on the metal-pedal. :)
The printing presses are controlled by foot pedals.
Perpetual QE is already priced into the USD. The FX market was doing the same for the Yen & the cable last two-four weeks, as such devaluations came "unexpected", esp for the Pound.
Next up is the EUR.
Ben has to wait till the circle is complete, prior to resuming.
...long term very Euro negative as the other PIIGS are slaughtered, as and when needed, by the American/British Treasuries covering money printing operations...
+1
Yes, yes that too. But it's the rhetoric that counts nowadays, isn't it? The month's end exchange rates will determine the truth.
Come back here on Wednesday. :)
Bullshit, Ben isn't waiting for shit and he continues to monetize debt directly to the tune of 85 billion per month, indefinitely.
I'm pretty sure they called up Bernanke prior to releasing this a few mins ago,
French President Hollande says it is the time to improve competitiveness.
ECB's Asmussen says it is a must for Europe to become more competitive.
ECB's Asmussen says unlimited OMT is an important signal to market.
ECB's Asmussen says ECB has not done too little or too much.
Seems it's what Goldman and JPM both want the way they've been talking this up.
Morgan Stanley's been getting that 3's a crowd feeling for some time..
I would assume they are amongst the bondholders kept whole.
Somebody has to benefit from excessive Bear, Lehman, MS exposure...
History shows a little targeted "Systemic Risk" is good for consolidation.
It's also good for accountability, and I'm thinkin that where the problem lies, and dies.
EUR 1.2 in 2 weeks. I said this is what they want, I doubt this is the way to stop at 1.2, it will go much lower.
My own bank run, a slow one underway for MANY years, is picking up the pace... Buying gold today!
Fuck you Jamie, creating counterparty risk and problems where there are none seems to be the job of every banker these days.
Backpedaling fast. The coin is still tossed in the air. Nothing is for sure. What will it show when it all comes down?
German parties slam Cyprus deal:
"Berlin - Leading figures from across the German political spectrum criticised Europe's bailout deal for Cyprus on Monday, describing plans to impose a levy on small savers in the Mediterranean island's banks as a major mistake.
Finance Minister Wolfgang Schaeuble, who represented Germany in the rescue talks in Brussels, tried to deflect blame for the agreement however, saying it was “not the creation” of the German government and that he was open to changes"
http://www.iol.co.za/business/international/german-parties-slam-cyprus-d...
You would expect them all to backpedal given the criticism, but the cat is now out of the bag. Just the fact that this was suggested should be warning enough to any bank depositor anywhere. Or for that matter, anyone holding monies in any public account anywhere (that includes you, 401k account holders).
And let's not forget, this isn't the first time something of this nature has happened (and certainly won't be the last). Just a few years ago Argentina nationalized private savings.
If you aren't holding significant amounts of physical, you just aren't paying attention.
This could be backpedaled all the way but the mortally wounded casualty is confidence.
It takes years if not decades to rebuild confidence after a financial debacle but only one incident like this to lose it. Loss of confidence is truly the beginning of the end.
"we would expect future crises to be exacerbated by more extreme deposit flight."
Flee on the rumor, repatriate after the haircut.
More talk of the significance of this and that and how more firm actions will do that or this. It's all BS. It is past the water's edge now.
No bullets fired. Nothing changes.
Oh I get it now. This is a back door way to help Mario twist Germany's arm to start printing.
"This would likely mean the ECB would have to increase its presence as liquidity provider of last resort"
ECB can't do anything if euro banks have losses in dollars
that is true, which is why the swaps won't stop. However in this situation the bank runs will be on euro.
Let's see........Wednesday.
Remember BRENT VIGILANTES
there will be no bank runs....the citizenry is way to f-ckin apathetic to everything going on....geezesjesus man, even with greece hanging on by a thread, the people STILL keep their money in the bank...............same goes for spain......................its so sad...................they are getting trampled on, yet the fear of LEAVING THE EURO, the threat of returning to their own valueless currencies are far more powerful forces that keep the populace at bay......fonz, there will be no widespread bank runs, because the globalist assholes keep hammering home to the sheep the lie that a bank run will destroy the banking system, will destroy their country, will destory the euro...throw the world into the dark ages.....pestilence and horrible famine should that occur...........its rather unbelievable................
lol believe me Kito I have been saying that all along. Of course their will be no bank runs. The central banks will plug every hole and people will not even know there was one to begin with.
The NCAA tourney is starting, I just don't have a lot of time for this stuff with my brackets and all.
Indeed, nothing changes until people start to believe their own "lying eyes" and actually do something. S&P is now saying that the situation in the EZ is "socially explosive". Right, how well armed are europeans these days? How "explosive" would such a situation be in orange county california if the power went off and the banks didn't open or do business for a few weeks? Hhmm, I wonder...
Funny between S&P and JPM and everyone else they are trying their asses off to create a panic.
Why not, Germany and the rothschilds would love a weaker Euro right about now.
they are in a bit of a catch22 eh?? a weaker euro would be the result of instability...................which they do not love......................far more important to hold it together, even if that means a higher euro.......................
Unless JPM wants bank runs. Recall the JPM VP in 2008 that said ~ "oh no, we're not going help out homeowners with the bailout money, we're going to use it to buy up the failed competition."
Are JPM, Goldman and friends waiting to snatch up all the failed banks at bargain basement prices? Of course they'll pose themselves as the saviors... Italy, do you want our 'help' too?
Could be, would take care of the DAX too, and at the same time, Merkels can sell fiscal and monetary strictness to their voters.
"we expect that having more extreme scenarios play out will not necessarily reinforce investor confidence"
"The war situation has developed not necessarily to Japan's advantage" -- Emperor Hirohito, August 1945
Capital Controls are on their way
Nada. Bank holidays and ATM shutdowns are the only capital controls available.
..and gun confiscation
As I said a few weeks back, people will eventually come to regard border patrol officers as prison guards.
“The central bank is an institution of the most deadly hostility existing against the Principles and form of our Constitution. I am an Enemy to all banks discounting bills or notes for anything but Coin. If the American People allow private banks to control the issuance of their currency, first by inflation and then by deflation, the banks and corporations that will grow up around them will deprive the People of all their Property until their Children will wake up homeless on the continent their Fathers conquered. ” – Thomas Jefferson
he was one smart bastage
..and as broke as a dropped plate
wealth is not measured in fiat money alone...probably has a huge underground bunker fulll of gold coins that has not been discovered yet
He was only wrong about one thing. They'll NEVER wake up.
In their nightmare's they'll blame each other.
Fuck 'em then, fuck the sheep, the useless cattle & the unthinking peasants.
This is a War, and I will not tolerate any insubordination, nor treasonous thoughts, nor reckless inactivity in the face of danger, when the survival of the whole regiment is at stake.
Those Consitutions were written for Free Men by Free Men; a slave is a slave by his own Will.
beware central planners
"...burden-sharing .."
the arrogance of these nazi propagandists is breath-taking....notice how they have twisted personal property confiscation into a civic duty and obligation of good morals using nazi-speak "burden-sharing"....and of course the fucktards will buy it...
depositors are now expected to share the burden of criminal banks' insolvencies....but they will never share the profits...
fuck jpm and its naziism
It's all part of our gradual transition to Newspeak. Remember how taxes aren't taxes anymore, they're "revenues?" Same thing.
And their budget deficits will only be solved by "revenue enhancement."
and subsidies are now "tax incentives"
Yea, it's curtains all round after this.
surely, surely surely the cyrpiot parliament cannot succesfully breach deposit insurance contracts (<€100,000), financial contracts (deposits rank ahead of all other bank borrowings) and the doctrine of privity (third part has no legal redress to a first and second part).
http://www.lawteacher.net/contract-law/privity.php
how can the activities of remote entities result in a loss for parties that are innocent of all wrong doing? is this like a war, where the entire nation is locked away if they lose?
the cyrpiot government (and all other country governments within europe) has not yet given up sovereignty, since in holds the right to withdraw from europe.
there are thousands of lawyers in cyrpus. i hope they are organized in such a way as to fight this in class action format.
LOL, you sound like you believe that laws are anything BUT words on paper.
yah i know...how can i have been so stupid as to believe in contract law...stupid stupid stupid
They aren't breaching any contracts! The Cyprus measure is a one off Tax. Your contracts will no doubt have a clause in it that says you are responsible for paying any taxes that might be levied.
Ain't it grand when a plan comes together?
hmmm...all tax is theft or was that all property is theft...sounds suspiciously pierre-joseph proudon like to me
does this mean that a goverment can take your house, your company, your pets, your car anytime it feels like it???? surely thats not ummm legal?
oh wait...neither is droning civilians in downtown islamabad or miami...god i'm stupid, stupid stupid!
No, the gvt just waits until YOU slip up, then it's vulture (I mean venture) capitalizm at it's best. I'm waitin for gvt to slip up, so I can get froggy and jump.
EVERYBODY relax, this is just all part of ray dalios beautiful delveraging...............DONT WORRY.....a little austerity, a little wealth tax, mix in some capital controls.........add some printing, some bank bailouts..............its all good.....everything will revert to the norm in a decade or so......ALL WILL BE WELL.............keep investing....move along now.......................................
Why that's an astounding capital statement, did I miss one?
Bullish on safes, mattresses, coffee cans and guns.
and astronaut ice cream.......................delicious.......and long lasting.............
Didn't MF Global teach anybody anything
Yes, but the masses forgot that it COULD and WILL happen again
The masses didn't forget anything. Most people don't know the first thing about MF Global. They're sitting ducks.
I didn't know my deposit was such a burden. See, because I thought that if was actually going to take on the same to worse risk than a senior secured bondholder, I'd actually get somewhat of the same return. Where's my 5% on my loan (deposits) to the bank?
yep...repression of retail clients but not wholesale..
and exactly why do companies pay less tax than individuals?
age old question...is there more activity when consumers have money in their pockets or when corporates dont pay taxes.
saw this today:
http://247wallst.com/2013/03/15/companies-paying-the-least-in-taxes/3/
1. General Motors
> Income tax expense: -$34.83 billion
> Earnings before taxes: -$28.70 billion
> Revenue: $152.26 billion
> 1-yr. share price change: 9.91%
> Industry: Automobile manufacturers
Unlike J.C. Penney, GM did not receive its tax benefit because of operating success. The company received an “automotive interest expense” tax credit from the government, which was related to impairment of assets and amortization. This and related write-offs mean GM may not have to pay federal taxes for several years. Absent the write-offs GM has done relatively well recently. Revenue reached $152.3 billion last year, up from $135.3 billion in 2010. GM’s greatest challenge going forward is the losses in its European operations, which are made up mostly of its Opel and Vauxhall businesses. These losses have hurt global net income, offsetting some of GM’s success in the United States and China. GM has posted red ink in Europe for 13 straight years, and the car industry there is so troubled that there is no end in sight.
Read more: Companies Paying the Least in Taxes - 24/7 Wall St. http://247wallst.com/2013/03/15/companies-paying-the-least-in-taxes/#ixzz2NuivYMpS 35 billion in tax credits on revenue of 135 billion....jeeeeeeezzzzusssss...was this factored into the cost of the "bailout"? may as well give the cyrpiots 15 billion and get them to build an airline and hotels for american tourists with prices fixed at half that of five star florida hotelsThese are just small creaking sounds... the type that you hear in the bow of a wooden ship on a windy day. The overhead sky is clear.... storm clouds are barely visible on the horizon... but they are there.... they are coming... and we are headed right into it.
let's just say that there has been a "sea change" in people's attitudes in europe and that they always want two months of expenditure for food, entertainment, household one offs (screw utility bills, they are in the system) on hand.
this will mean that there will have to be printed banknotes to the tune of 1/6 of gdp of 15 trillion euros that will come out of the banks and into peoples phsyical wallets, maybe the germans won't, so lets exclude 3 trillion of gdp
2 trillion in cash goes into peoples wallets and OUT OF THE DIGITAL MONEY SYSTEM so that it cannot be on lent with the same certainty.
expect a (diluted) impact on gdp as LEVERAGE MUST BE FURTHER REDUCED as banks deposit base is eroded.
No your honor, This was not a home invasion robbery, it was a burden sharing operation..............
you got it...as long as the individual takes less than 10% of the value of a property or a company..it is burden sharing and not theft
Kinetic Financial Action
Whence the need for more taxes especially from tax havened corporates and individuals.
Nowhere to run now except towards those Oligarchs, the ECB debt pump is approaching saturation. And Merkel has said NEIN to joint and several for bank safety nets.
"We will do what it takes", Draghi's part of the bargain, is now sounding "hollowish".
Reinstate Glass-Stegall. Isn't that what helped send Keating to jail in the S&L crisis of 198x?
Glass-Stegal was done to protect the people from scurrilous bone-head bankers that only shoot for the moon with Other-Peoples-Money!
Oh yeah, the politicians that allowed these travesties are TBTF (Too Bought To Function), duhhhhhh.
Stop talking about new legislation and reactivate that which is proven to be effective!
lol..that dumbass cuban lady on cnbc is coming out with the meme "we would need 45 jpm's to have the same scale"
she has no effing clue that offshore banking units are to physicals what massive derivative expsoures are to onshore banking units
liechtenstein has 35,000 people
luxembourg has 509,000 people
the vatican only has 836!!!!! people
these countries have tens of billions of dollars of assets and are just as guilty of money laundering, bank fraud (and paedophilia in the latter case).
Nobody in southern Europe seems to be having any real problem with any of this. No lines at ATMs in other PIIGS countries today. I take that as their tacit approval to do the same to them (I'm sure Germany takes it that way, too). I didn't think anyone could be THAT socialist, but I guess they can. Need my money for the greater good? OK, take as much as you like.
I'll never again try to put myself in a European's shoes. Forget it. They are dumber sheep than we are, if that's possible.
OOPS - NO VOTE TODAY:
http://www.aljazeera.com/news/europe/2013/03/20133186523939840.html
If this haircut is a one time theft that made their banks solvent, those depositors got a bargain compared to the poor bastard savers under the Bernanke banking system.
“During this new stage of the depression, the refugee gold and the foreign government reserve deposits were constantly driven by fear hither and yon over the world. We were to see currencies demoralized and governments embarrassed as fear drove the gold from one country to another. In fact, there was a mass of gold and short-term credit which behaved like a loose cannon on the deck of the world in a tempest-tossed era.” -Herbert Hoover
kind of the point of having a transportable store of value
As of 3:49pm MST no access to my Chase account.
Reinstate Glass-Stegall. Isn't that what helped send Keating to jail in the S&L crisis of 198x?
Glass-Stegal was done to protect the people from scurrilous bone-head bankers that only shoot for the moon with Other-Peoples-Money!
Oh yeah, the politicians that allowed these travesties are TBTF (Too Bought To Function), duhhhhhh.
Stop talking about new legislation and reactivate that which is proven to be effective!