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The MinotEur Labyrinth: What Europe's "Bank Resolution" Looks Like In One Chart

Tyler Durden's picture




 

Late last night, European Union finance ministers agreed on a new system to centralize control of failing euro-zone lenders - a so-called "bank resolution mechanism" - in the hope that it will stop expensive banking crises from ruining the finances of entire countries.As WSJ reports, ""Taxpayers will no longer foot the bill when banks make mistakes and face crises, ending the era of massive bailouts," according to Michel Barnier, the EU's internal market commissioner." Sadly, Mr. Barnier is incorrect, for two main reasons.

First, in Europe the link between a bank and its sovereign has never been tighter courtesy of ever rising holdings of host sovereign debt by a bank in question (subsequently repoed with the ECB for cash) currently at recordh high levels across the periphery, which means a major bank failure will always result in taxpayer impairment.

Second... well, instead of describing it, we will instead simply show graphically courtesy of the FT just what the "streamlined" bureaucratic process for achieve bank "resolution" in Europe looks like. The numbers in brackets show how many people are involved at any given stage of the resolution process: 148 or so in total.

In a word (or two) - good luck.

 

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Thu, 12/19/2013 - 12:23 | 4260857 disabledvet
disabledvet's picture

Tanks in Athens?

Thu, 12/19/2013 - 12:26 | 4260872 hedgeless_horseman
hedgeless_horseman's picture

 

 

In a word (or two) - good luck.

Fringe bloggers that do not have faith in the robust "bank resolution mechanism" illustrated in this graphic do not understand the political capital invested in Europe.  They vastly underestimate what the Euro means for the Europeans, for the Euro area.

Thu, 12/19/2013 - 12:29 | 4260891 LawsofPhysics
LawsofPhysics's picture

Are you speaking for the employed or unemployed europeans.  The sarcasm/irony is heavy today...

Thu, 12/19/2013 - 12:43 | 4260941 hedgeless_horseman
hedgeless_horseman's picture

 

 

Google translator says the European word for "bank resolution mechanism" is klüsterphük.

Thu, 12/19/2013 - 12:44 | 4260947 hooligan2009
hooligan2009's picture

heh...nice umlauts

Thu, 12/19/2013 - 14:07 | 4261202 Haager
Haager's picture

That's not it. It depends a lot on how the question is presented and how the media did about the Euro the days before, due to lack of intelligence on both sides of the pond.

It's a lot like killing the messenger, scapegoating everything, and the people really responsible keep going on with the abuse. Maybe they're enjoying the theatre.

Thu, 12/19/2013 - 12:46 | 4260945 hooligan2009
hooligan2009's picture

i will bet 10 bitcoins that a poll conducted over the course of the next three months that poses the following question to the 340 million "europeans" would have a majority of "yes".

"do you want your country to exit the euro?"

Thu, 12/19/2013 - 12:52 | 4260961 Ghordius
Ghordius's picture

complicated? yes. cumbersome? yes

yet on the other extreme you'll find the equivalent of Hank Paulson asking for a trillion, or else...

and again, hedgeless, you still seem not to understand Draghi's words. a simple example: how much political capital is invested in the American Flag? enough to make it a crime if someone burns one. think about that

Thu, 12/19/2013 - 12:56 | 4260972 Bearwagon
Bearwagon's picture

I am curious now. According to what I've heard, burning the flag would be a violation of the flag code, but one would be save from punishment, because of a strange amendment to a legendary constitution I also heard of.  ;-)

Thu, 12/19/2013 - 13:09 | 4260991 Ghordius
Ghordius's picture

no idea. perhaps I should have taken a different example: homeownership. there is so much political capital invested on the concept that mountains of public funds have been spent on it's subsidy, in all AngloPhone countries. just shortly the UK was heavily subsidizing "first ownership", by the tune of guarantees for three quarters of the newly raised downpayment of 20%

compare it with countries like Germany, where over 60% of the pop lives since decades in rent. according to some, they would be hells on earth

"political capital" is just a way of describing how important it is, and there Draghi is correct: ZH in general does not understand well those foreign depths

I blame the Telegraph crowd, in particularly AEP. oh, and the ridiculous propaganda war in the UK between UKIP and some idiots on the other side

Thu, 12/19/2013 - 15:52 | 4261501 hedgeless_horseman
hedgeless_horseman's picture

 

 

Perhaps you should have taken a different historical example: slavery.

Thu, 12/19/2013 - 16:29 | 4261610 Ghordius
Ghordius's picture

is the EUR really like slavery, for you? then you seriously don't understand our continental perspective. or what it means to have a small national currency in currency wars

note how the minor european FX are nearly all tying themselves to the EUR. would we be freer if our previous national currencies would all peg themselves to the dollar or the yuan?

Thu, 12/19/2013 - 13:00 | 4260979 CuttingEdge
CuttingEdge's picture

Just a shame some of those sworn to defend the American flag (the NSA in particular) choose to wipe their arses with it...

Thu, 12/19/2013 - 13:14 | 4261007 fxrxexexdxoxmx
fxrxexexdxoxmx's picture

The Euro is perfect. It transfers wealth from the citizens within it to the .001% of the Euro at a faster pace than any system before.

The .001 percent love it while working poor simply do not understand what is happening.

The Euro is one of best systems ever designed for the .001 percent.

Thu, 12/19/2013 - 16:29 | 4261614 Groundhog Day
Groundhog Day's picture

HH

You forgot the rest of the statment: "Their is no plan B"

Thu, 12/19/2013 - 19:50 | 4262222 StychoKiller
StychoKiller's picture

Hmm, no blocks on sending perps to jail...

Thu, 12/19/2013 - 12:26 | 4260866 NoDebt
NoDebt's picture

Everyone has a plan until the first time they get punched in the face.

When the day comes that the shit hits the fan again, they'll bail them again.  In, out, both, whatever.  They WILL get bailed again.  TBTF has been institutionalized, not reduced.

Thu, 12/19/2013 - 12:31 | 4260898 Winston Churchill
Winston Churchill's picture

After depositors and bondholders have been fully  bailed in, yes.

Thu, 12/19/2013 - 12:40 | 4260934 falak pema
falak pema's picture

Now you talk Mutti's language, the only language worth a euro kopeck! 

Thu, 12/19/2013 - 13:15 | 4260870 ParkAveFlasher
ParkAveFlasher's picture

I don't see the part where the little birdie comes out of the little doors, and says, "cuckoo!  cuckoo!"

EDIT: oh wait, there it is, the "mediation panel", that must be where the little doors go.

Thu, 12/19/2013 - 12:31 | 4260890 Confundido
Confundido's picture

....this reminds me that the Ancient Greeks had figured out that the only possible way to get out of the mess was by flying, like Icaro. But I think the story did not end well... or did it?

Thu, 12/19/2013 - 13:33 | 4260935 hooligan2009
hooligan2009's picture

that depends on your point of view...

icarus flew...too close to the sun and the wax holding his wings together (fed sponsoring consumption now) melted..while his father, the famous creta,n daedalus (designer of the Minoan labyrinth or the laws of the land), watched from the ground and had to live with the death of his son (middle classes).

Thu, 12/19/2013 - 12:37 | 4260912 Anglo Hondo
Anglo Hondo's picture

Are the required funds going to come out the camel's ass that they just designed?  Talk about a committee of hundreds.

 

Thu, 12/19/2013 - 12:35 | 4260915 falak pema
falak pema's picture

we need to get WB7 to animate that stuff.

Imagine the Mutti thing coming out of the cukoos's nest flying on angel wings in her birthday suit, bumping into Hollande who says "cheese", and then shaking hands with Von Rompuy who says "Oh puleese, not this", all the while Draghi sings "I'm in tapered, sterilised, stress relieved heaven." 

Where brave men fear to tread and where angels sing "its all fixed", in never never land. 

A Barroso for your thoughts and a Farage for you farts, Uncle Santa has his sledge full of presents for every bank TBTF!

Happy new year on Bull Run ! 

Thu, 12/19/2013 - 12:43 | 4260936 eddiebe
eddiebe's picture

You would think with as many unemployed people around, they would figure out how badly they are being fucked and start doing something about it. But I guess things haven't gotten bad enough yet.

Thu, 12/19/2013 - 12:43 | 4260938 Bunga Bunga
Bunga Bunga's picture

Central planning: This is why socialism fails.

Thu, 12/19/2013 - 14:32 | 4261292 Tenshin Headache
Tenshin Headache's picture

True, but there seems to be a lot of central planning in capitalism today too. That's what happens when you let corporations buy the government. It's called fascism.

Thu, 12/19/2013 - 12:42 | 4260940 Dr. Engali
Dr. Engali's picture

These people crack me up with their "plans". The thing about plans is that when shit hits the fan plans are thrown out the window and people grab what's important and run. 

Thu, 12/19/2013 - 13:10 | 4260997 moonman
moonman's picture

"Everyone has a plan until they get punched in the face" - Mike Tyson

Thu, 12/19/2013 - 12:51 | 4260958 Bearwagon
Bearwagon's picture

The president of the European parliament, Martin schulz, already said that this will not pass. The agreement of the parliament is mandatory. So forget it ...

Thu, 12/19/2013 - 13:03 | 4260988 BearTrap
BearTrap's picture

If you compare it to the American healthcare system diagram then it looks like something a 5-year old can handle.

Thu, 12/19/2013 - 13:31 | 4261003 saveUSsavers
saveUSsavers's picture

EU Banksters issuing massive subordinated debt on dumbarse investors

http://globaleconomicanalysis.blogspot.com/2013/12/european-banks-dump-m...

Thu, 12/19/2013 - 13:19 | 4261022 astoriajoe
astoriajoe's picture

imagine how long the capital controls will be in place while those committee folks decide how much of your money they will take. Jiminy Christmas.

Thu, 12/19/2013 - 13:22 | 4261037 W74
W74's picture

Who needs Kings when you have 145 money-changers and a mediation panel?

Thu, 12/19/2013 - 18:00 | 4261108 falak pema
falak pema's picture

The stuff that legends are made of : the fortress Alesia; the Siegfried line; not saying its the Maginot! `

No, No, No, no Maginot, not again! Luckily Mutti says she's on our side this time. Guderian drives a Euro tank!

PS : Just for the record when a bank goes down : Northern Rock; Dexia; it happens in a matter of HOURS as the banks stay in DENIAL until the margin call makes them go belly up. So a leviathan structure like the one above, which involves NINE committees and 126 people, is NOT the IDEAL structure or process to find resolution when TSHF.

Just saying; Siegfried line may look like gruyere cheese! Maginot cheese!

Thu, 12/19/2013 - 13:45 | 4261117 smacker
smacker's picture

There are several important matters to be pointed out on this:

 

1. quite apart from this EU-wide Single Bank Resolution Policy, the UK already introduced its own version - quickly put in place just before the GBP 1.5 billion black hole was announced in the Co-op bank earlier this year. When this EU version takes effect one presumes it will replace the UK's interim version.

2. apart from one or two detailed articles recently posted on ZeroHedge about bank "bail-ins", neither the UK Govt nor the UK MSM has ever publicly announced the UK resolution policy and never explained what it means to ordinary bank account customers.

Without any public discussion or announcement, ALL holders of bank accounts - whether they be current accounts (US=checking accounts), savings accounts or in the UK, ISA accounts - are now renamed as "investors" or "creditors".

These new-found bank "investors/creditors" all appear on a bank's pecking order list and are at risk of being "bailed-in" if/when a bank discovers another black hole in its balance sheet. It is a decision of the bank which of its investors/creditors will be given a haircut to fill up the black hole.

In the UK, there are legitimate questions over why the Co-op bank's black hole was only announced just after the Bank Resolution Policy was introduced in a blaze of secrecy in April/2013, when the hole was known about 5-6 months earlier in November/December 2012. There are also legitimate questions over why ordinary Co-op bank accounts were not given a haircut. Two of our three major political parties bank with the Co-op (Labour Party & Lib Dems). That may provide a clue.

As folks on ZH have always said: Cyprus was the template for bail-ins. It always was, despite political denials.

A bank needing resolution will simply close its doors on a Friday evening and announce that it's going into resolution over the weekend. Apart from those "in the know" who get their money out in time, nobody will have any idea that over the weekend, their bank accounts are likely to be skimmed by whatever %age the bank decides is appropriate to fill up its black hole. 5-15% is probably not a bad estimate. When the bank re-opens on Monday morning - almost certainly with capital controls in place to prevent a belated stampede - customers' money will already be gone.

As far as I can see, customers with less than EUR 100,000 (GBP 85,000) should not assume that if their accounts are given a haircut that they can make a claim on the Deposit Protection Scheme. This is because close examination of the insured risks under DPS reveals that it does not insure against government policy, which is what Bank Resolution is.

 

Thu, 12/19/2013 - 16:52 | 4261685 falak pema
falak pema's picture

As far as I can see, customers with less than EUR 100,000 (GBP 85,000) should not assume that if their accounts are given a haircut that they can make a claim on the Deposit Protection Scheme. ...

Point Taken...it all depends on the amount of fiat shit under the carpet, and the eventual dynamics of the downturn for the integrated banking system.

However it is normal that the first to pay are those whose revenues have increased in this current crisis in a fashion that can only be described as exponential based on criminal scamming pushing the value up of all asset classes, inspite of 2008 crash, and that is CRIMINAL.

IN A BINARY SITUATION ITS BETTER TO BAIL IN THAN TO BAIL OUT.

The banks made this mess in Reaganista hubris; let their rich corporates and other clients pay first and not the lowest on the social scale. That is the principle of protecting the weakest and its nothing to be ashamed of; quite the contrary if we have an ounce of humanity. 

I don't buy the argument of : why me when "ME" has a comfy life even if it is honestly earned. In wars the best die first. Its time that that was reversed! 

Sacrifice is a bitch granted, but when the rich cheat collectively they should also pay COLLECTIVELY.

Today they get richer! Otherwise, its back to the jungle. No way! Under Oligarchy control. 

Thu, 12/19/2013 - 17:08 | 4261744 Panafrican Funk...
Panafrican Funktron Robot's picture

$9.6 trillion dollars in US deposits, backed by $25 billion in FDIC funds for "insurance".  This is the reason why bail-ins will be the rule of the day here in the US.  I'm assuming the situation is roughly similar in the EU.  This is also the reason the Fed won't be able to actually taper past around March 2014 quarterly expiration, because the impairments to the value of treasury bonds, when those trillions in deposits have been leveraged to the hilt to buy said 10 bonds (and stocks), mean certain doom for those deposited funds.  

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