Guest Post: Whose Insured Deposits Will Be Plundered Next?

Tyler Durden's picture

Submitted by John Aziz of Azizonomics blog,

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According to Zero Hedge, it could be Spain:

 Spain, it would appear, has changed constitutional rules to enable a so-called ‘moderate’ levy on deposits.

New legislation in New Zealand suggests that depositor funds could be used to bail out banks there, too.

Far more worrying for American and British depositors though is this paragraph Golem XIV brings up from a joint Bank of England and FDIC paper from 2012 which points to the possibility of using deposit insurance funds to bail out illiquid banks:

The U.K. has also given consideration to the recapitalization process in a scenario in which a G-SIFI’s liabilities do not include much debt issuance at the holding company or parent bank level but instead comprise insured retail deposits held in the operating subsidiaries. Under such a scenario, deposit guarantee schemes may be required to contribute to the recapitalization of the firm, as they may do under the Banking Act in the use of other resolution tools. The proposed RRD also permits such an approach because it allows deposit guarantee scheme funds to be used to support the use of resolution tools, including bail-in, provided that the amount contributed does not exceed what the deposit guarantee scheme would have as a claimant in liquidation if it had made a payout to the insured depositors.

Of course, if deposit insurance money is used as a resolution tool to bail out a bank which then goes on to fail anyway (as we have already seen multiple times since 2008 — a bank receives a large liquidity injection, and goes onto fail anyway) depositors could end up moneyless.

As Golem XIV notes:

The new system makes the Deposit Guarantee fund available for use as bail out money.

The rationale is that if using your deposit guarantee fund for propping up the bank ‘saves’ the bank from collapse then you wouldn’t need that deposit guarantee would you? This overlooks the one lesson we have all learned from the bank bail outs of the last 5 years, that the bail outs are never, ever, ever, a one off. The first one fails to save the bank as does the second and third and and and.

So if I have read the above correctly – the new system raids the Deposit Protection scheme, gives it to the bank instead of you  and when that fails to save the bank…then what? The bank fails again and there is no money left in the Deposit Guarantee scheme.

Now, in the case of this kind of scenario actually happening, it seems probable that governments and central banks would try to replenish the deposit insurance fund. Whether the fund would be replenished to its full extent, or whether insured depositors would suffer an effective haircut remains to be seen.

These kinds of policy suggestions coming from governments and central banks are extremely worrying for depositors, because it implies that what is happening to Cypriot depositors and Cypriot banks could be forced onto British and American depositors. In a worst-case-scenario, criminally minded bankers (of which there seem to be many) could even use this provision to intentionally run off with deposits.

We know that the TBTF banking sector (or G-SIFI’s — global systemically important financial institutions — as they are now known) remains fragile, over-connected and dependent on insider advantages. That means that over the next few years, it remains possible that there could be another severe banking crisis in Britain or America or both.

Just what in the world do financial regulators think they are doing even implying that depositor guarantee funds could be used to bail out banks under such an eventuality? Such a recommendation — and the attendant possibility of insured depositor haircuts — could severely impact confidence in the banking sector, just as it has done in Cyprus. The possibility that insurance money may go down the toilet to bail out illiquid banks will make some uneasy to invest their money in the banks. If a severe banking crisis looms, it could lead to bank runs, just as is happening in Cyprus. The trend, if events in Cyprus and Europe continue to escalate, and if other jurisdictions do not take steps to protect depositors from banker greed, is toward depositors losing faith in the banking system, and seeking other stores of purchasing power — mattress stuffing, bitcoin, tangibles.

Essentially, if there is to be any confidence in the banking system, the possibility of depleting liquidity insurance funds to bail out banks needs to be taken off the table completely. The possibility of insured depositor haircuts needs to be taken off the table completely. If banks need bailing out, the money must not come from insured depositors, or funds designed to compensate insured depositors. If banks fail, the losers should be the uninsured creditors.

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AlaricBalth's picture

My deposits are insured by 2 Mako sharks and a Moray eel.

fonestar's picture

Who's next?

Probably anyone except me because I am a dumb little sheep who lives in a bubble and nothing bad ever happens around here.

Careless Whisper's picture

What's all the worry about? Sheila Bair said "We can not run out of money."   Shift P 

http://www.youtube.com/watch?v=7BxiEJcOoo0#t=2m01s

 

Texas Ginslinger's picture

I didn't see the words 'wealthy tax dodgers' anywhere in Aziz's text.

He does understand that Cyprus is an offshore tax haven, right..??

To me it looks like the folks in control are sending a message to tax dodgers everwhere...

Maybe that doesn't fit into his storyline..??

kaiserhoff's picture

This looks to me like a random walk, or the classic drunk's path home...

but a raid on Monaco would scare the shit out of a few people.

NotApplicable's picture

Insured deposits? LOL

Friday Humor came a day early this week, I see.

kaiserhoff's picture

Next they'll do the Mafia thingy, and sell you insurance from themselves.

Layers upon layers of madness.

 

Mr. Fix's picture

Maybe people will now notice that absolutely nothing has been fixed.

 It's amazing how many folks have no idea what's coming.

DosZap's picture

I didn't see the words 'wealthy tax dodgers' anywhere in Aziz's text.

Texas, problem is as usual they LIE.

If it were really about Rooskie Mob $$, then they should have left the Cypriots alone, and the Ex-Pats, as there are plenty of NON Rooskie deposits that they were going to LOOT.

Imminent Crucible's picture

Only about 30% of the money in Cypriot banks belongs to foreign depositors. The majority of the depositor haircut was going to be stolen from ordinary Cypriots who were told their deposits were 100% safe--a day before the Euro Central Beast ordered the banks locked down and raided.

Now they have a problem. Once you say the unspeakable, you can't un-say it. How can they ever re-open those banks? They will simply implode as depositors--ALL depositors--rush to get out every last farthing.

I can still hear President Zedillo: "The peso will not be devalued. The Banco de Mexico remains committed to a strong peso. I assure you, the peso will not be devalued."  And he didn't--until after midnight.  So, when the FDIC and the ABA say "Don't worry, your money is absolutely safe because we have around $30 billion in the insurance fund to cover your $9 trillion in savings", that's when I get worried. Especially since deposit insurance doesn't cover taxes or other depredations of government.

"All your savings are belong to us."

SWCroaker's picture

You do understand that lobbing a grenade into a crowd because you suspect an axe murder is hiding in it is morally wrong and reprehensible?  If you have issues with where some money came from, or the legality of particular account holder, then by all means enforce the laws extant in that land and pursue them through legal means.   To harm the baker and candlestick maker to get at the thief raises questions about the sanity of those in charge, as well as discussions about which the masses would be better off without: thieves, or their government dick-wads.

It is the same issue for those fools who promote the concept of "tax the rich".   To their pea brains, rich --> evil & guilty --> deserving of a good ass raping.   While that may be true of some rich, perhaps even many, to use it as a single discriminator for dishing out moral justice is ludicrous in the extreme.   Such un-evolved grunting proto-humans shouldn't be allowed to operate heavy machinery, vote, drink, or in any way participate in determining anyone's fate.

Here, let me give you a working example:

A) dick-wad journalists, talking heads, guest experts and blog posters who support the raping of all Cypriot deposit holders, because some Cypriot deposit holders might be Russian mafia, should be repeatedly ass raped, and have the punishment shown via streaming video to the world at large.

B) dick-wad journalists, talking heads, guest experts and blog posters should be repeatedly ass raped, and have the punishment shown via streaming video to the world at large.

Do you see that it is okay to vent your spleen and cry for justice with option A, because those being punished actually deserve it?    Do you see that option B is not okay, because it has absolutely nothing to do with justice, but just indicates a proclivity for ass raping?

Humans are supposed to give a shit about morality.       Step up!

The Heart's picture

"then by all means enforce the laws extant in that land and pursue them through legal means."

Exactomundo.

Sarkozy Faces Charges In Corruption Probe?

http://news.sky.com/story/1068144/sarkozy-faces-charges-in-corruption-probe

 

nmewn's picture

"To me it looks like the folks in control are sending a message to tax dodgers everwhere..."

Tell ya what..."when the folks in control" quit partying on the peoples dime like drunken socialists and get serious about WHAT THEY HAVE DONE, I'll give ear to their pleadings of a tax dodger behind every blade of grass.

So far, no go...and I'm fifty three now.

SafelyGraze's picture

it's all about saving for retirement

http://postimg.org/image/jff4xapup/

(may be slow to load)

prains's picture

The kiwi's will sacrifice their goats on thr alter before this ever happens

Stoploss's picture

 "If banks fail, the losers should be the uninsured creditors."

 

There's a word for that...  Hmmm.. Right on the tip of my tongue...

Oh, got it, it's called....

 

 

RISK

disabledvet's picture

Good luck. "socialized losses" is the way for now...and maybe a long time actually. Who's next? Spain is already doing this. I'd say "good luck trying this shot in Italy" but after they sold their soul to the euro and had all their gold carted off to Frankfurt (talk about a war crime. And yes Maria B I'll be the best sex you ever had...and you to me as well) it was "euro or die." Round up the usual suspects if you want to who really is behind this shit. It's really not that hard. And no...Merkel is not one of them.

savagegoose's picture

what is this guarantee they all talk about? is it ok to just add a %10 fee t savers when t comes time to claim on a bank default? isnt that what this is about, ? the bank has defaulted, and now the savers want to claim their $100k ea back. and they say no you pay %10 to get it back, even though its guaranteed, and there was no mention of a claim fee before, but here it is now. pay up or get nothing.

So i ask how much will we pay here to get our guaranteed deposits out ?

AlaricBalth's picture

But wouldn't that be like extortion? Not to worry. There are laws against that. {sarc}

Dr. Engali's picture

Do your fricken sharks have fricken lasers on their fricken foreheads?

zorba THE GREEK's picture

Whose insured deposits will be plundered next?

Answer: Everyone"s 

Hongcha's picture

Stirrings, eh?

I'll get stirrings in my cameltoe for the day I see the technokrats cattle-prodded down the street with bells around their necks.

dick cheneys ghost's picture

Lets hope humanity wont get fooled again with this debt money shit..........

t_kAyk's picture

Well hope in one hand and shit in the other... 

fonestar's picture

2 cups of high fructose corn syrup, some opiate-like trance inducing programming, boobs, cushions & credit cards...

ya, they'll get fooled again..

kito's picture

leave boobs out of this.................

YC2's picture

Seriously, don't pretend you're above boobs

StychoKiller's picture

I'm always up for a bust in the mouth! :>D

Dr. Engali's picture

Good luck with that idea. The bankers are always out there lurking. They may have their set backs every once in a while like Lincoln and his greenbacks, but the cockroaches always seem to squirm their way back in.

localsavage's picture

God forbid that an insurance company take a hit.  

Solon the Destroyer's picture

Deposit insurance is nothing more than a fraud. I'm surprised at Aziz's take on this, as he's supposedly an Austrian.

Here's Mish's take on the Deposit Insurance scam:

http://globaleconomicanalysis.blogspot.ca/2013/03/fraudulent-guarantees-fictional-reserve.html

Aziz's picture

If you're explicitly promised something, i.e.deposit insurance, and that promise is revoked because your government are a bunch of thieving, lying bastards, then that is a problem.

In my ideal world, we wouldn't have deposit insurance, but we don't live in an ideal world, we are promised deposit insurance, and this is a way for the banks to suck money out of the taxpayer.

Imminent Crucible's picture

Got to agree, Mr. Aziz. However.....when "Government becomes destructive of these ends, it is the right of the people to alter or abolish it and to institute new Government....when a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such government [insert photo of Homeland Security Manatee here], and to provide new Guards for their future security."

GCT's picture

Go check your accounts all if you do have any cash in them as the FDIC only insures non interest bearing accounts!! 

Dewey Cheatum Howe's picture

Eh wrong

http://www.fdic.gov/deposit/deposits/insured/basics.html

What does FDIC deposit insurance cover?
FDIC insurance covers all types of deposits received at an insured bank, including deposits in a checking account, negotiable order of withdrawal (NOW) account, savings account, money market deposit account (MMDA), time deposit such as a certificate of deposit (CD), or an official item issued by a bank (such as a cashier's check or money order).

FDIC insurance covers depositors’ accounts at each insured bank, dollar-for-dollar, including principal and any accrued interest through the date of the insured bank’s closing, up to the insurance limit.

The FDIC does not insure money invested in stocks, bonds, mutual funds, life insurance policies, annuities or municipal securities, even if these investments are purchased at an insured bank.

The FDIC does not insure safe deposit boxes or their contents.

The FDIC does not insure U.S. Treasury bills, bonds or notes, but these investments are backed by the full faith and credit of the United States government.

What it doesn't cover for interesting bearing accounts and an interesting question in and of itself is credit union accounts those are insured seperately by the NCUA

https://en.wikipedia.org/wiki/National_Credit_Union_Administration

http://www.ncua.gov/Pages/default.aspx

The $64 question is if they pull this gambit here can they and will they also go after the credit union accounts at the same time. It is no brainer they will do it with FDIC insured accounts because those banks are the ones most likely to fail due to risky derivatives exposure.

defencev's picture

Deposit insurance is nothing more than a fraud. I'm surprised at Aziz's take on this, as he's supposedly an Austrian.

Azizoid is not Austrian: he is an ignorant fraud. The libertarian viewpoint is clear: there should not be any government insurance scheme because it gives cover to bankers who should not be really in the business. For those who do not understand the situation in

New Zealand I want to clarify: there is no government insurance scheme in New Zealand (the same is true in Switzerland). The deposits were temporarily covered by deposit insurance scheme during 2008-2011. I keep a substantial amount of money in one of the New Zealand banks but I do not lose my sleep because my deposits are not government insured. The customers suppose to do a homework and choose a reliable bank if they do not want to keep their cash in the matress (and, yes, in NZ you still can get some interest on your deposits plus the currency is doing exceptionally well and economy is improving). The current proposal is to use, if necessary, some of the deposits to cover the possible failure of the bank. It is just one of the possible options and I actually welcome it. It has certain advantages: in case if your bank fail you can lose some of your deposits but you still will have uninterrupted control of the remaining funds. More importantly, if bank A fails, deposits from bank B will not be used to bail bank A out.

Hongcha's picture

Stirrings, eh?

I'll get stirrings in my cameltoe the day I see banksters cattle-prodded naked down main street with bells around their necks.

peter4805's picture

Please, tell me more about this cameltoe of which you speak.

lolmao500's picture

Silly conspiracy theorists!

Don't worry, the banks have CDS as insurance! If they go bankrupt or there's a run on the bank, they can always fund themselves with CDS!

AlaricBalth's picture

Counterparty protection! What could possibly go wrong?

kaiserhoff's picture

Wunderbar.  Zo, all I half to do ist zehn times over, insurance makin, und den go bauch floppin?

katzenjammer kraut.  can only be translated by the very drunk and/or degererate.

nonclaim's picture

"... they can always fund themselves with CDS!"

And don't forget all defaulted bonds (canceled debt) can be booked as profit!

Ourrulersknowbest's picture

Why thank you banker fuckster,I would like to give you my money....
How much do I pay you to mind it for me?.....
Do I have lube,?you ask.......
Moooon river..............

surf0766's picture

All your money are belong to us !

willwork4food's picture

That used to be funny about 3000 posts ago.

SheepDog-One's picture

Come on! Jeez lighten up Francis!

King Dong's picture

There is a palpable fear now that I've not seen before. The unthinkable is now thinkable and the thinkable almost reality. At the very least this will fuck confidence in every facet of the economic society

ziggy59's picture

They aint tapping a country whose savings are backed by Pb