Fed Governor Stein Warns When A TBTF Bank Fails, Depositors Will Be Cyprus'ed

Tyler Durden's picture

Two months ago, Fed governor Jeremy Stein caused a major stir among the very serious excel-using economists and other wannabe "scientists"-cum-voodoo witchdoctors, when he hinted that it was the Fed's actions that were leading to "overheating" in the markets. It took quite a bit of rhetoric by other very serious people to talk down his comments and give the impression that the S&P is not about 50% overvalued. Today, Stein has managed to stick his foot in his mouth for the second time in a row, and do what virtually nobody in the status quo is capable of: tell the truth.

In a speech titled "Regulating Large Financial Institutions" Stein made something very clear: if and when a TBTF fails, and since this time is not different, and a failure is only a matter of time, depositors will lose everything (courtesy of some $300 trillion in gross unnetted liabilities which once there is a counterparty chain failure, suddenly become very much net and immediately marginable - a drain of cash), which now that Cyprus is the template, is to be expected. Not only that but Stein makes it all too clear that part of the Dodd-Frank resolution authority guidelines, a bailout is no longer an option.

Perhaps more to the point for TBTF, if a SIFI does fail I have little doubt that private investors will in fact bear the losses--even if this leads to an outcome that is messier and more costly to society than we would ideally like. Dodd-Frank is very clear in saying that the Federal Reserve and other regulators cannot use their emergency authorities to bail out an individual failing institution. And as a member of the Board, I am committed to following both the letter and the spirit of the law.

At least he can't say Americans weren't warned when the Cypressing(sic) hammer finally falls.

Oh, and as a reminder...

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
jmcadg's picture

This will be a worldwide bank confiscation:


Be your own central bank.

astoriajoe's picture

"even if this leads to an outcome that is messier and more costly to society than we would ideally like."

so how messy is the ideal level of messy? Just checkin'

knukles's picture

There was this Dirty Sue I knew in college and let me tell you about messy...

SheepDog-One's picture

If by now people still trust the TBTF banks then they deserve the kornholing they'll get one of these mornings and I dont feel sorry for them at all. 

sosoome's picture

It sounds like Stein is giving us fair warning.

NotApplicable's picture

What about small businesses though? Not a lot of options for them.

Parrotile's picture

Not just Small Businesses, rather everyone who is paid by Direct Credit Transfer - and the majority (99%++) are paid this way, for "security reasons", and because it's very convenient for the Employer (especially if they rule over a large workforce), the Revenue Services, and of course the Banking Institutions.

Even with the "system" running "smoothly" it takes THREE working days to clear deposits (so much for instantaneous Interbank Transfers!), and I no longer keep count of the times we've ALL had e-mails from Payroll "apologising for delays in payment processing" - delays that are measured in days, not hours . . . . . .

Elect to be paid in cash? Won't do it, cause they can't do it. Applies to ALL State Health Services, and all Governmental Services (military, Police, Fire, Ambulance, Education, Soc. Services , etc., etc.)

MassOpiate's picture

How are they gonna cyprus me?  I leveraged myself upto the hilt . . .


Of course you can bet they won't let debtors get off scot free. . .

sosoome's picture

Spot on.

Investors and depositors should be the ones to lose, not the tax payers.

Apply that principle and excessive risk will stop pronto.

Parrotile's picture

The "Excessive Risk" horse has long left the stable.

What happens when it is decided that there is no difference between holdings in a deposit account, and a current account?

What happens when the wages in those current accounts disappear, for all those invisible "Service Providers" your comfortable standard of life depends on?

If you think they'll "carry on regardless" you've got a surprise coming - and remember Sod's Law - disasters always seem to happen at the most inappropriate time.

EVERYONE better hope the "system" continues, 'cause if it doesn't, things will become "very interesting" VERY quickly.

Abi Normal's picture

I suspect we are further down the rabbit hole than we think!

Smuckers's picture

Oh I see.....NOW they follow Dodd-Frank.

polo007's picture


The Secret World Of Gold Part 1


The Secret World Of Gold Part 2


The Secret World Of Gold Part 3

Smuckers's picture

Try as he might - Bart will never pull off a Rutger Hauer.

vulcanraven's picture

Thank you for posting this!

Silberadler's picture

Awewsome !

Thanks for the links - tried the whole tie to access the CBC website but was blocked.

IP hiding did not help either.

Looks like an intersting documentary.


Wonder when it gest taken down...


fijisailor's picture

When I started watching part 1, part 2 and 3 were available.  After watching part 2, Part 3 has been deleted; the part pointing directly at the big banks.  Anyone know where part 3 is?

RSDallas's picture


Kirk2NCC1701's picture

Oh fuck!  THIS. IS. THE. BIG. ONE.  10.0 on the Richter scale.  Where's my latest Phyz, PM shop!?

buzzsaw99's picture

...depositors will lose everything, which now that Cyprus is the template, is to be expected.


Bullshit! frank/dodd is talking about stock and bond holders not depositors under the fdic limit. cyprus isn't a pattern for anything here. this piece is shameless fear mongering.

knukles's picture


andrewp111's picture

Uninsured depositors will take losses. That is nothing new. What is different is uninsured depositors in large TBTF banks will take losses.

buzzsaw99's picture

the fed doesn't make those decisions, the fdic does. all the fed does is buy crap assets off the tbtf so dimon, blankfein, et al, can get their bonuses. this fed fuckface is full of shit.

Abi Normal's picture

Does it really matter if there is systemic failure, everyone loses in the end!

Dr. No's picture

Thank you Captain Obvious.

Why would it be a surprise if you placed your money in the protection of someone else, there is a chance you will not get it back?


America has gone soft.

They Tried to Steal My Gold's picture





A Deposit in this bank is considered an investment in this bank. This bank operates under the fractional banking system. This mean that this bank will use your investment to lend to others as well as engage in trading for the bank's profitablilty. This bank will lend at a ratio of  9 to 10 times the total amount of the deposits. 


Because of this 9 to 10 times lending ratio your investment can be at risk. You could lose some or all of your money should the bank's lending to others not perform as expected. Additionally this bank also engages in derivative trading and synthetic investments. Both of these types of trading is considered high risk. This bank also lends to commercial developers that are subject to periods of under performance. 


You can deposit or make unlimited investments in this bank. However, if you elect to withdraw any amounts over $10,000 per withdrawal, the bank is required to notify the IRS and the US governent. In addition, any requests to withdraw more than $10,000 at one time may take up to a week to return your investment back to you. We recommend to call in advance or make an appointment to get your investment returned.


The FDIC has funds on average of 1-2%  for all total US Federal Banks depositors investments. This coverage is designed to cover $250,000 per investor's individual checking and saving accounts. Any accounts that have in excess of $250,000 are not covered by the FDIC.


At this time there are no rememedies available in addition to the FDIC.

This Bank:

This bank is not liable for any failures of the FDIC. Should the FDIC file for bankruptcy, this bank is not liable. It is possible that the FDIC, if one or more banks file for bankruptcy at the same time or closely in time, that the FDIC could run out of funds for account coverage.  


We advise all depositers to seek and consult legal counsel prior to making investments with this bank. 


I have read this disclosure on my Investment deposit and have elected to make an investment in this bank.



     Bank Investor




Kirk2NCC1701's picture

+250,000.  Bravo!

Should be copy/pasted in mass-emails to all family & friends... like one of those "If you don't forward me to 5 or more people, bad luck will follow you".

Radical Marijuana's picture

Good comment They Tried to S!

An excellent "Disclosure."

Of course, the whole system is based on FRAUD, which requires the basic facts NOT to be disclosed to people. It depends upon the vast majority of people continuing to be so completely clueless that they do not have a clue how clueless they are.

For those with a macabre sense of humour, it is amusing to try to tell mainstream morons that the banks make money out of nothing, except the borrowers' promise to repay that money made out nothing, with interest, that has not yet been made out of nothing, to be able to repay the money that was made out of nothing in order to loan in the first place.

The whole system depends upon the majority of people not understanding how the monetary systems works, and not wanting to understand! It is the result of the prolonged triumph of lies, backed by violence, whereby people have learned that it is better to continue to be ignorant and apathetic, since there are no practical alternatives but to still be forced to participate in that monetary and taxation system.

People who wake up to how screwed they are then tend to not be able to do anything to change those fundamental social facts, although they may do some personal things to prevent themselves being as screwed as they otherwise would be, if they had continued to be completely ignorant.

Tijuana Donkey Show's picture

You forgot "Any asshat GOVT agency that thinks you owe them money can sack your deposits at any time, without warning."

gwar5's picture



Jim Sinclair has upped his ante way up on price of gold. Between Stein's statement, the recent failure of the paper market in gold, and the global run on physical gold, Sinclair now says gold is going to $50,000.  Sinclair is usually spot on. Failure of SIFIs, (bail-ins) and failure of paper gold market will make this inevitable.

Even if he is 100% wrong, gold only goes to $25,000. I rather doubt gold will go to $700.

$50K?? I gotta get my head around that one. But it does look like things are moving towards Rickards' Option #3 outcome of currency wars, which is a disorderly (chaos) resolution.  Rickards had said recently $44,000/oz is what it would take at current levels to balance the money supply, so the numbers are not random.



SHRAGS's picture


$50K?? I gotta get my head around that one.

It wouldn't have been if you had been reading FOFOA - he has been predicting this  pricing since at least 2009, for Phyzz only, not paper. 

css1971's picture

Seriously? Here? I thought everyone knew this?

It's been this way for at least 200 years, WTF do you think there are runs on banks?


JR's picture

What I say regarding Jeremy: Pull him out of there. Let’s get together and pull him out.  You can’t have crooks taking private property and calling it “law.”

It’s time to exercise the real law: we earned this money and it belongs to us and no matter what kind of fancy words you use, you ain't gonna get it without a fight.

Times are a lot different from the old days when a legitimate bank failed; today these thieves already are saying they are going to take depositors' property. When a bank does something bad and falls, it’s one thing, but this is stealing. And Frank and Dodd and Ben knew it when they buried this little bomb.

The Fed is busy trying to put revival lipstick on a dead pig. All this mumble jumble is just a way to keep the public from the realization that QE is nothing more than complex theft, and that the Fed is on the verge of a currency failure.

Before the death sentence of a currency failure is imposed on America, Americans must take back their legitimate control of the currency by abolishing the Fed and its elite few of whom they no longer have any control; and if the Congress won't do it, the people must rectify the situation through revolutionary means.

leftcoastfool's picture

"Dodd-Frank is very clear in saying that the Federal Reserve and other regulators cannot use their emergency authorities to bail out an individual failing institution."


Someone should have told this to Hank Paulson that Sunday night in 2008 when he bailed-out Goldman-Sucks by giving them bank holding company status, allowing them to borrow from the Fed...

yogibear's picture

Fair warning when they do fail and swipe funds from accounts.

Corzine paved the way with MF Global and investment firms.

GreatUncle's picture

What Cyprus has shown and the article, just take any money you have in a bank out.

It really is that simple and if you can't buy gold or silver put it under the mattress.

So you get a 10% estimated return over the next 2 years? Whoopdedoo only to find you then take a 20% haircut in some form or other.

This is the current nature of economies everywhere.


Godisanhftbot's picture

 That why I say, even if they go to 1 cent, please, put all your money in Bitcoins.

malek's picture

 I am committed to following both the letter and the spirit of the law.

He forgot to state which law - I'm sure he'll find one that allows him to do the exact opposite, if needed

neutrinoman's picture

The US unlimited guarantee of deposits ended with the S&L crisis of 20+ years ago. There's never been any guarantee on brokerage accounts, etc.

The handwriting has been on the wall for 20 years: the TBTF banks are big, unstable, and bloated monstrosities. If you have money on deposit with them, take it out.

We got these monsters because, in the 1990s, we were told that such big institutions were needed to compete with the "universal banking" model in Europe and Asia. You can see where that got Europe and Asia. And look where it's gotten us. They were also the object of lavish subsidies by the Fed, and needed as well as places to park all those CDOs, CLOs, etc., from subprime mortgage lending -- local banks weren't allowed to touch that stuff, for the most part.

The homegrown Glass-Steagall model is far superior. But for now, put your money elsewhere, in some nice regional or local bank. And keep an eye on it. We have to go back to what our grandparents and great-grandparents knew about this issue and stop assuming Uncle Sugar Daddy's going to bail everyone out. Trust but verify.

WillyGroper's picture

>>>>>There's never been any guarantee on brokerage accounts, etc.

SIPC - $500K of which they will only insure up to $250K Cash. The balance in equities.

SKY85hawk's picture

This may have been said further down, I didn't read all the comments.  I do think it's worth repeating;


The worst part is that derivative exposure is senior to depositors, so if B of A or Chase or any bank goes under, she says, "In the US, depositors have actually been put in a worse position than Cyprus deposit-holders, at least if they are at the big banks that play in the derivatives casino. The regulators have turned a blind eye as banks use their depositaries to fund derivatives exposures. And as bad as that is, the depositors, unlike their Cypriot confreres, aren’t even senior creditors. Remember Lehman? When the investment bank failed, unsecured creditors (and remember, depositors are unsecured creditors) got eight cents on the dollar. One big reason was that derivatives counterparties require collateral for any exposures, meaning they are secured creditors. The 2005 bankruptcy reforms made derivatives counterparties senior to unsecured lenders."

Anyone with an account in a bank that has derivative exposure is asking for trouble.

Can anyone say, with real certainty, that their account will be covered before this kicks in?

Bingfa's picture

Yes, changed back in Bush's 2nd term.....

Radical Marijuana's picture

I REPEAT this comment regarding Canada:

The following can be found on pages 144 to 145 (within the document, 154-155 in the pdf) of Jobs Growth and Long Term Prosperity – Economic Action Plan 2013 as tabled in the House of Commons by the Hon. James Flaherty, Minister of Finance on March 21, 2013.

This was otherwise known as the "budget," but that no longer looks anything like what a "budget" was supposed to be. Rather, it is 400 plus pages of propaganda.


The Government proposes to implement a bail-in regime for systemically important banks.
This regime will be designed to ensure that, in the unlikely event that a systemically important bank depletes its capital, the bank can be recapitalized and returned to viability through the very rapid conversion of certain bank liabilities into regulatory capital. This will reduce risks for taxpayers. The Government will consult stakeholders on how best to implement a bail-in regime in Canada. ...

Does it make the stakeholders feel any better that they will be consulted on how best to implement that kind of bail-in regime? (I dislike that euphemistic phrase "stakeholders," as another example of professional liars speaking sideways.)

Of course, it is only a question of time until some aspect of the multihundred trillion dollar derivative bomb goes BOOM ... The main way that the ruling classes have anticipated that happening was to prepare to impose democidal martial law upon the "stakeholders" who get so seriously screwed ... That is probably why there has been such a steady stream of more false flag murders taking place inside America.

The runaway triumphs of the criminal banksters controlling our civilization is headed towards collapsing into chaos, which will probably trigger more mass murders. The worst thing about that appears to be that those banksters already know all that, as well as anyone else, and expect it to work through, to become even better for them in the longer term!

The economy is being deliberately destroyed, through an inside job, while almost all of the terror events that I have examined turned out to also be inside jobs, that were the main ways that the ruling classes are preparing for the consequences of them deliberately destroying the economic systems, since they expect to be able to go through that, and consolidate their power and control even more so, on the other side ...

I expect that to manifest much more extremely within the USA than anywhere else! I believe that less than 10% of Americans understand what is being prepared, which can be read between the lines of this statement from a central bankster.

sudzee's picture

"Certain liabilities" . What is this to mean?

Canada savings bonds

Does "certain liabilities" infer all of the above?

Seems to me that that the banks want real estate.
In the US is this just legalization of MERS II. Can't steal ownership of property legally so we'll do it by FED edict.

Banks are starved for real assets and RE is the ticket to kick the can down the road a little further.

Son of Loki's picture

You're only depositors...not bankers.....


You don't count. You're expendable.

FranSix's picture

What he means to say is that a TBTF which is technically bankrupt can access their client's assets so that they can open the next business day.