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Europe Make Cyprus "Bail-In" Regime Continental Template

Tyler Durden's picture




 

Turns out that for Europe, Cyprus was a "bail-in" template after all, and following an agreement reached early this morning, Europe now has a joint failed-bank resolution mechanism. Several hours ago, EU finance ministers announced that they had reached agreement on the principles governing the imposition of losses on creditors in bank 'bail ins'. Having already agreed to establish "depositor preference" in the pecking order of creditors at risk, the stumbling block to agreement was the availability of flexibility at the national level to complement the bail in with injections of funds from other sources. Under the compromise achieved overnight, once a bail in equivalent to 8% of total liabilities has been implemented, support from other sources can be used (up to 5% of total liabilities) with approval from Brussels.

So investors (i.e. yield chasers) and not taxpayers will foot the cost of bank bailouts going forward for a change? Maybe on paper: "From 2018, the so-called “bail-in” regime can force shareholders, bondholders and some depositors to contribute to the costs of bank failure. Insured deposits under €100,000 are exempt and uninsured deposits of individuals and small companies are given preferential status in the bail-in pecking order." In reality, last night's agreement is the usual fluid melange of semi-rigid rules filled with loopholes designed to benefit large banks whose impairment may be detrimental to "systemic stability".

To wit, from the FT: "While a minimum bail-in amounting to 8 per cent of total liabilities is mandatory before resolution funds can be used, countries are given more leeway to shield certain creditors from losses in defined circumstances." In other words, here is the bail in regime... which we may decide to ignore under "defined circumstances."

Next, since the "package must be agreed with the European parliament, a process that could stretch until the end of 2013" we urge no breath holding, especially since it was in late 2012 that news of a joint European bank regulator was announced, and one year later this concept has crashed and burned. In fact the bail-in deal will "open debate on further stages of financial integration, including on establishing a central authority to shut down eurozone banks" and "Germany is strongly resisting centralising such important powers to shut down banks under existing treaties."

In other words, yet another European agreement that is at best worth the price of the paper it is printed on. In the meantime, if indeed some of the systemic European banks keel over and die - say Credit Lyonnaise, Natexis or Deutsche - the last thing that anyone will think about to avoid a systemic collapse will be impairing even more banks. As a reminder, these are the most undercapitalized banks in Europe as reported by Goldman yesterday:

 

But golf clap to Europe for finally admitting that reason and logic also apply to the most banana continent of all: after all, it took years of legislating to realize that the insolvency impairment waterfall, a concept rooted in logic and not in political BS, applies in Europe as it does everywhere else in the world too (except for the TBTFs in the US of course).

And all of the above, from a slightly less jaded perspective, via Reuters:

The European Union agreed on Thursday to force investors and wealthy savers to share the costs of future bank failures, moving closer to drawing a line under years of taxpayer-funded bailouts that have prompted public outrage.

 

After seven hours of late-night talks, finance ministers from the bloc's 27 countries emerged with a blueprint to close or salvage banks in trouble. The plan stipulates that shareholders, bondholders and depositors with more than 100,000 euros ($132,000) should share the burden of saving a bank.

 

The deal is a boost for EU leaders, who meet later on Thursday in Brussels, and can show that they are finally getting to grips with the financial crisis that began in mid-2007 with the near collapse of Germany's IKB.

 

"For the first time, we agreed on a significant bail-in to shield taxpayers," said Dutch Finance Minister Jeroen Dijsselbloem, referring to the process in which shareholders and bondholders must bear the costs of restructuring first.

 

The rules break a taboo in Europe that savers should never lose their deposits, although countries will have some flexibility to decide when and how to impose losses on a failing bank's creditors.

 

"They can affect German savers just as well as they can affect any other investor in the world," German Finance Minister Wolfgang Schaeuble said after the meeting.

 

* * *

 

But thorny issues lie ahead, not least whether countries or a central European authority should have the final say in shutting or restructuring a bad bank.

 

The European Commission, the EU executive, is expected to unveil its proposal for a new agency to carry out this task of "executioner" as early as next week, officials said.

 

"The most important discussion has yet to start and that is how decisions on restructuring will be made," said Nicolas Veron, a financial expert at Brussels-based think tank Bruegel. "It's premature to say that Europe is getting its act together."

 

Many Europeans remain angry with bankers and the easy credit that helped create property bubbles in countries including Ireland and Spain, which then burst and plunged Europe into a recession from which it has yet to recover.

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Thu, 06/27/2013 - 05:57 | 3698412 e-recep
e-recep's picture

if the bank runs don't start now, they never will.

Thu, 06/27/2013 - 06:04 | 3698422 malikai
malikai's picture

You need to have money in a bank to begin with. Which I think is becoming less and less a problem as things continue.

Thu, 06/27/2013 - 06:17 | 3698442 SoundMoney45
SoundMoney45's picture

It would seem that Credit Suisse and UBS are working diligently towards resizing Switerland's banking sector to be commensurate with Switzerland's GDP.

Thu, 06/27/2013 - 07:58 | 3698566 GetZeeGold
GetZeeGold's picture

 

 

Papers please.....and your checkbook.

Thu, 06/27/2013 - 06:31 | 3698457 Headbanger
Headbanger's picture

Exactly. And as more people have less to lose financially, they won't care about much of anything to do with tje banks or the government run by banks. And so as they did in the fall of Rome, the slaves open the gates for the barbarians to sack the empire. This is what the 1% fail to realize they have done to this country.

Thu, 06/27/2013 - 07:17 | 3698510 malikai
malikai's picture

World.

Who are the barbarians going to be this time? I'm afraid we might just end up eating each other.

Thu, 06/27/2013 - 07:26 | 3698519 Rubicon
Rubicon's picture

Beats eating KFC

Thu, 06/27/2013 - 08:00 | 3698564 Quinvarius
Quinvarius's picture

Here is a good 45 minute series on Roman economics and inflation.  It is what is coming.  Notice towards the end, no one even wated to be a Roman because there was no economic freedom.  The population wanted out. 

http://www.youtube.com/watch?v=S4KuDlCaWPA

http://www.youtube.com/watch?v=5rS9hkNYcf8

http://www.youtube.com/watch?v=cDK5Ic64SDQ

Infact, you could say Rome became collectivist and is the first example of collectivism as a sign of the end of your civilization.  This series is a good listen.

Thu, 06/27/2013 - 08:11 | 3698598 malikai
malikai's picture

Here's a good 5 minute summary of the end of our Rome. Although I don't suspect the music will be as beautiful for us.

http://www.youtube.com/watch?v=QlIMqqd2nsU

Thu, 06/27/2013 - 10:01 | 3698882 g'kar
g'kar's picture

The first peep of bail-in's here in the US, I'll be bailing into gold in silver with all my accounts.

Thu, 06/27/2013 - 12:41 | 3699553 jmc8888
jmc8888's picture

They've already taken people's deposits and turned it into worthless stock in Spain (Bankia) and Britain (Co-operative).

Of course the stock dropped like a rock (80 percent) before they were allowed to sell.  Then dropped more once the selling began.  Of course like anything else, some people were able to get out before the moratorium expired on the peasants. 

Dodd-Frank means bail-in has been our law.

Glass-Steagall

 

Here read more about it

http://larouchepac.com/node/26821

http://larouchepac.com/node/26997

 

Thu, 06/27/2013 - 05:58 | 3698413 CitizenLame
CitizenLame's picture

DIESEL BOOM!!!

Thu, 06/27/2013 - 07:29 | 3698523 LMAO
LMAO's picture

"NOT A TEMPLATE" springs to mind.

LYING SACK OF JENKEM !

Thu, 06/27/2013 - 08:18 | 3698537 e-recep
e-recep's picture

indeed. these people are lying pieces of shit.

“The Cypriot program is not a template, but measures are tailor-made to the very exceptional Cypriot situation,” according to the document, agreed yesterday by representatives of euro-zone finance ministries and intended as a guide for explaining Monday’s decision to the public. (March 27, 2013)

Source

 

that's was three months ago.

 

 

 

Thu, 06/27/2013 - 08:47 | 3698624 Bearwagon
Bearwagon's picture

Could they have communicated any clearer that it is a template?!  ;-)

Thu, 06/27/2013 - 06:01 | 3698417 Wile-E-Coyote
Wile-E-Coyote's picture

The bastards are coming!

Thu, 06/27/2013 - 06:13 | 3698438 123dobryden
123dobryden's picture

The bastards will be going!

let them take the pain...stories of poor Cypriots who sold their house and got their money confictated doesnt make me cry....The prices of their houses are 5x higher then reality anyway, they generaly enjoyed 3-4x higher standards of living for the last decade instead of their poor shepardlike and tourist servants what they really should, now the bill has come, let them go bancrupt totaly, why only 8% why not everything? I dont have any money in the bank, i am not supporting banksters, whay shoud i support them through bailouts unvoluntarily?

 

Thu, 06/27/2013 - 06:14 | 3698440 123dobryden
123dobryden's picture

retarded savers only support this system anyway, sooner it collapses the better

Thu, 06/27/2013 - 08:00 | 3698570 GetZeeGold
GetZeeGold's picture

 

 

Dude...lay off my grandma.

Thu, 06/27/2013 - 10:22 | 3698965 123dobryden
123dobryden's picture

you all hypocrites, imagine your libertarian paradise for a while, what protection does your grandma's savings have there, except her wits and wits of family?...well if someone stupid enough, he  has to pay for that, stupidity is actualy very very expensive thing.

you all crying here for poor people, actualy those same very people are very very stupid, the wolves were here all the time, thats basic law of nature, that they have to eat meat, meat of the weak and poor. thats darwin in full beaty, week have to learn their lessons, so they become strong, either they do or they end up like wolf's supper.

 

i dont think i have to explain this to you as majority of you are getting your money from the very industry you cry about

 

btw we are in the midst of a greatest depression ever, THERE ARE LOSSES, someone wil have to foot the bill either way...The most just solution is to let it all go bancrupt, let the state go bancrupt, but that would mean, no jobs and pensions for bureaucrats, low pensions for old generation generaly either, savers would have to take a hit, massive lay offs in state owned, less massive in some private companies, maybe 50% of financial industries jobs would have to dissapear overnight.

Actualy scenarios like this happened in less developed countries several times a year, its only west that can't remeber anything like this, for for 60-70 years there was a massive debt scum being orchestrated by almost each and every western leader ever elected by.......well by people

Thu, 06/27/2013 - 06:02 | 3698420 Sudden Debt
Sudden Debt's picture

people don't care. They all say: "I DON'T HAVE 100K IN MY ACCOUNT!"

but they don't realize that their boss does... and he uses that to pay for their wages... and suppliers... you know... to buy the stuff they need to sell...

Thu, 06/27/2013 - 06:05 | 3698423 malikai
malikai's picture

Yea fuck the evil capitalist.

Oh, wait what? You mean I'm broke now too?

Fuck..

Thu, 06/27/2013 - 06:26 | 3698450 Headbanger
Headbanger's picture

I bet a lot of people are actually counting on bank failures thinking their mortgage will evaporate with the bank or be cut in half.

Thu, 06/27/2013 - 06:37 | 3698466 Ratscam
Ratscam's picture

debt always stays at 100%, whereas credit gets reduced by 50% as happened in East Germany

Thu, 06/27/2013 - 06:29 | 3698453 Jayda1850
Jayda1850's picture

I've talked to people until I'm blue in the face and gotten nowhere. I would look forward to the day when I can say I told you so, but when that day comes, getting credit for calling it, will be the least of our concerns.

Thu, 06/27/2013 - 06:31 | 3698458 FranSix
FranSix's picture

Unlikely that anyone will want to take credit for devolution.

Thu, 06/27/2013 - 13:32 | 3699794 Crtrvlt
Crtrvlt's picture

made me think of this

 

Alfred Pennyworth: Know your limits, Master Wayne.

Bruce Wayne: Batman has no limits.

Alfred Pennyworth: Well, you do, sir.

Bruce Wayne: Well, can't afford to know 'em.

Alfred Pennyworth: And what happens on the day that you find out?

Bruce Wayne: Well, we all know how much you love to say "I told you so."

Alfred Pennyworth: On that day, Master Wayne, even I won't want to. Probably.

Thu, 06/27/2013 - 06:36 | 3698464 Non Passaran
Non Passaran's picture

First they came for those with >100K in their account...

Thu, 06/27/2013 - 10:15 | 3698935 astoriajoe
astoriajoe's picture

I fear it will go something like this.

Aug. 26, 2013: An announcement will be made "Because markets have recovered after a long hard journey from the financial crisis in 2007-2009, we are reducing FDIC insurance to $50,000 per depositor. Banks are much better capitalized now and risks to the system have receded."

 

August 30, 2013, a sign on the bank reads: Bank Holiday from August 31-Sept 3. Please be aware that fund availability will be limited for the foreseeable future.

Thu, 06/27/2013 - 07:33 | 3698526 HoaX
HoaX's picture

So you mean banks will actually have to draw in depositors and investors based on their solvability?

The horror!

Thu, 06/27/2013 - 09:26 | 3698756 Ghordius
Ghordius's picture

correct, most don't realize that their boss or the company they work for has way more than 100k on their accounts. and yet... what is the option? insuring all deposits? this legend that this is even mathematically possible is one of the cornerstones of the Too Big Too Fail complex

and the bigger the company (and so the cash account), the easier for it's CFO to spread the cash on several banks

Apple, just to make an extreme point, has a very elaborate cash management that is practically a hedge fund & a small tax-haven banking system for itself

I'm happy to read that there is also some logic in the pecking order, as the article says "Insured deposits under €100,000 are exempt and uninsured deposits of individuals and small companies are given preferential status in the bail-in pecking order." because it's small and medium companies that are at greatest risk, due to their size and so the size of their cash management

meanwhile I'm slightly puzzled (hope did not catch a virus from Ben Bernanke) from Tyler's comment "But golf clap to Europe for finally admitting that reason and logic also apply to the most banana continent of all: after all, it took years of legislating to realize that the insolvency impairment waterfall, a concept rooted in logic and not in political BS, applies in Europe as it does everywhere else in the world too (except for the TBTFs in the US of course)."

I don't get it - my little English might me failing me. What is exactly different in the US? What is this concept of "insolvency impairment waterfall"? I agree with Tyler that all this BS in europe was tedious at least and intellectually dishonest, but those three words chained together don't make a clear sense to me

I might be radical in this, but imho fiat fractional banking draws from a public good, i.e. public credit. banks under this system are priviledged and should act as custodians of this public credit. and after all, someone has to buy their shares, bring in deposit or bring assets to collaterize so that they can work - even in an "Glass Steagall" environment (to which we still haven't reverted). but all partecipants have to watch out and choose carefully with whom they want to bank - otherwise there is a sound reasons to get rid of the private sector and directly nationalize whole banking systems - the other way to solve TBTF

yes, I know, I already can read "it's not public credit, it's ponzi" - fine, agreed, then it's public ponzi. but you can't take the "public" out of it - and I miss the argument apt to convince majorities anywhere that "fractional" should be taken out of the equation

Thu, 06/27/2013 - 06:02 | 3698421 GVB
GVB's picture

I smell capital controls, I smell digital money. I smell something burning.

Thu, 06/27/2013 - 06:10 | 3698430 howenlink
howenlink's picture

Starting to worry about the safety of the bankers.

Thu, 06/27/2013 - 06:08 | 3698427 slaughterer
slaughterer's picture

EU: what a bunch of liars and thiefs. 

Thu, 06/27/2013 - 06:49 | 3698472 GVB
GVB's picture

Some people suggest to go out and protest on the streets. OK. The thing which is different between now and let's say 50 years ago, is that police force has grown in such way, they are now the equivalent of a nation's army. I refer to (1) Boston chasing 19yo kid, (2) Portugal riots, (3) Brazil riots, (4) Turkey riots, (5) German riots and many others. Really, what is an ordinary family guy to do against these police robocops... I really admired this one guy in Turkey who just made a statement "not rioting" against this force, but just standing still and all other people doing the exact same thing. Well, what else can he do.

Thu, 06/27/2013 - 06:49 | 3698473 GVB
GVB's picture

Some people suggest to go out and protest on the streets. OK. The thing which is different between now and let's say 50 years ago, is that police force has grown in such way, they are now the equivalent of a nation's army. I refer to (1) Boston chasing 19yo kid, (2) Portugal riots, (3) Brazil riots, (4) Turkey riots, (5) German riots and many others. Really, what is an ordinary family guy to do against these police robocops... I really admired this one guy in Turkey who just made a statement "not rioting" against this force, but just standing still and all other people doing the exact same thing. Well, what else can he do.

Thu, 06/27/2013 - 07:14 | 3698508 Bearwagon
Bearwagon's picture

In the tear-gas world championship the score at half time is Brazil scantily leading before Turkey, Portugal being a close third ... stay tuned.

Thu, 06/27/2013 - 06:08 | 3698428 Navymugsy
Navymugsy's picture

It's amazing how they corral everyone's money into the banks so it's "safe" and then they can use those assets to solve the banks problems. What a scam this all is.

Thu, 06/27/2013 - 06:35 | 3698463 Non Passaran
Non Passaran's picture

It's beyond me why would anyone want to hold more than E100K in a eurozone bank now. Are they stupid?

Thu, 06/27/2013 - 07:35 | 3698532 HoaX
HoaX's picture

Yeh, rather put your money on a US bank. Where if the SHTF you know the Bernank will just throw another 700bn at them (besides the 85bn per month he is already printing).

Fuck US taxpayers after all, those silly sheep deserve to bleed for their banks.

Thu, 06/27/2013 - 06:11 | 3698433 Tortfeasor
Tortfeasor's picture

This is the worst idea since the night mama and papa Bernanke decided to not use a rubber.

Thu, 06/27/2013 - 06:11 | 3698434 Crash N. Burn
Crash N. Burn's picture

"For the first time, we agreed on a significant bail-in to shield taxpayers," said Dutch Finance Minister Jeroen Dijsselbloem

 

Who the fuck does he imagine holds those accounts? Aliens?

Thu, 06/27/2013 - 06:33 | 3698460 joak
joak's picture

Part of the propaganda. I read the Bloomberg piece about this, it mentions "creditors", etc., but at no point DEPOSITORS (Reuters did). And actually this is how the muppets will understand this news : as a good one. I don't have much left in bank, but now I'm even considering about withdrawing.They say under 100k will be safe, I don't believe a word.

Thu, 06/27/2013 - 06:34 | 3698461 laomei
laomei's picture

It's all about playing hot potato and not getting stuck with it.  It's linked to the mentality that pushes for privatization of public resources.

So, the once-national bank was broken up into chunks and sold off for cheap to some insiders.  Great for lawmakers, they can stop having to care or take the blame.  They can point the finger and say "not us!".  Great for their insider friends who dump piles of cash as "donations" and have an effortless "job" lined up once they are out of office.  Afterall, profit profit profit.  If the government makes a profit, it's charging too much.  If it books a loss, then it's failing.   Once it's in private hands, no one's job is at risk anymore.  Sure, you can "vote" with your money I guess, but it's pretty useless.  Government scandal becomes corporate scandal with a flick of the wrist.  If there are profits now, it doesn't matter how crap the service is, hey look at it succeeding! So innovative to give less and charge more!  Then when it all goes to shit, the government has to step in and piss away more money fixing it than they ever saw in "savings".

 

This is just the next in the line of ignoring the pile of shit they dumped in the first place.   Oh? we simply CANNOT allow this bank to fail, afterall, that's why it's not nationalized and we have zero control over it.  Tell you what, we've decided that instead of the government stepping in to fix it, now they can just take your fucking money directly.  Afterall, we must shield the "taxpayers", of which the majority tend to be rich and they're the ones that bought the damn government in the first place.

 

New rule: If it's "Too Big To Fail", it's "Too Big To Be Private".

Thu, 06/27/2013 - 06:12 | 3698435 aleph0
aleph0's picture

@Tyler .... the charts show the "International Banks" and not for example local German Savings Banks ( Sparkassen und Volks- und Raifeisenbanken ).

The EU/ECB wanted to spread their Bank Regulator reach ( "Bankaufsicht" )  to the German "Sparkassen" a while ago, while the "Sparkassen" protested heavily, saying that their current system is more than adequate.

Do you know whether any decision was made ?

TIA

Thu, 06/27/2013 - 07:18 | 3698511 Bearwagon
Bearwagon's picture

At least at the moment, nothing has changed regarding the "Volks- und Raiffeisenbanken" and the "Sparkassen". They still remain cooperative banking associations, which is the system they deem more adequate. No politician would dare to change that - at least not until the elections are over.

Thu, 06/27/2013 - 06:19 | 3698444 Satan
Satan's picture

The only thing I got in my bank accounts are overdrafts.

Thu, 06/27/2013 - 09:08 | 3698707 Anton LaVey
Anton LaVey's picture

Good! You are all set!

Thu, 06/27/2013 - 06:21 | 3698446 spankfish
spankfish's picture

So when the "bail in" does not bail out the banks I bet you get a tax notice in the mail to pay up, right?  I think so, this smells like a double tax buried deep in the bail in template.  This resolution agreement probably reads like a Verizon terms of service agreement... the large print giveth and the small print taketh away.

Thu, 06/27/2013 - 06:22 | 3698447 FranSix
FranSix's picture

Economic model to contemplate, should bail-ins become the rule:

http://ow.ly/mqOY6

Do NOT follow this link or you will be banned from the site!