Germany Blesses "Bail-In" Deposit Confiscation Plan For Failing EU Banks

Tyler Durden's picture

One year earlier than required, the German government approved plans to force creditors into propping up struggling banks across Europe. As WSJ reports, Germany "leads the way" in Europe by implementing European rules quickly and "creates instruments that allow the winding-down of big systemically relevant institutions without putting the financial stability at risk." What this means is that taxpayers (theoretically) will not be on the hook (though in reality we are sure the mutually assured destruction defense will be played - especially if Deutsche runs into problems) but as German authorities explain, "This ensures that in times of crisis mainly owners and creditors will contribute to solving the crisis, and not taxpayers." As a gentle reminder - creditors includes depositors... remember Cyprus?

As WSJ reports, Germany's cabinet Wednesday approved plans to force creditors into propping up struggling banks beginning in 2015, one year earlier than required under European-wide plans that set rules for failing financial institutions.

The new bail-in rules are part of a package of German legislation on the European banking union--an ambitious project to centralize bank supervision in the euro zone and, when banks fail, to organize their rescue or winding-up at a European level.


Germany "leads the way" in Europe by implementing European rules quickly and "creates instruments that allow the winding-down of big systemically relevant institutions without putting the financial stability at risk," the country's finance ministry said in its draft bill seen by The Wall Street Journal.


"This ensures that in times of crisis mainly owners and creditors will contribute to solving the crisis, and not taxpayers."




Germany will apply these rules already from next year, according to the bill. Struggling bank creditors, in addition to shareholders, will have to help financial institutions, covering up to 8% of liabilities, before the banks can tap Germany's financial markets stabilization fund SoFFin.

Not everyone's buying the no-taxpayer-impact concept...

In an expertise report presented Wednesday, Germany's independent Monopoly Commission, which advises the government on competition and regulation issues, said its "skeptical whether market participants can muster sufficient capital buffer to effectively prevent the general public from being held liable."

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So Djisselblom's 'levy on wealth' appears to be getting closer and closer...

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buzzsaw99's picture

a whole 8% - LMAO

ebworthen's picture

What a deal the banks have - hands in the treasury, endless bailouts, QE, escaping the rule-of-law, and rights to the deposits of citizens.  Win-Win for .gov and the coporatocracy, Lose-Lose for citizens.

Don't ever wonder why .gov requires direct deposit of paychecks, and will soon get rid of paper/coin currency and outlaw precious metals transactions.

disabledvet's picture

Just about ready to finish my book "Whitey Bulger and the Secret to Living Large."

Might be time for an in person interview.

22winmag's picture

Translation: The German pot calls the American kettle black.

smacker's picture

The WSJ omits to mention that the UK already has its own bail-in policy which was rushed through and activated to sort out the Co-op Bank.

Presumably, this EU-wide version of it will be implemented in the UK at some time. And just like the UK version, there will be no public announcement by government or MSM.

i_call_you_my_base's picture

A better idea is to confiscate the wealth of anyone who served in government or anyone who held a senior position at a bank in the last ten years.

GooseShtepping Moron's picture

Why didn't they just invoke the Right of Conquest over Brazil after the shellacking they just gave them? I'm sure they can despoil enough from the World Cup host country to make Deutsche solvent again. Even the hometown crowd was chanting obscenities against the president, so it would have been a good time to plan a coup.

A triumphant German Naional Team: "Ve return to zee Fatherland bringing Brazilian reals."

Angela Merkel: "Wunderbar! How many's in a brazillion?"

DoChenRollingBearing's picture

Well, yes, I am sure Angela Merkel would be happy to welcome home the German team with the World Cup.  But, would it not make her even happier if each German player were bringing back a brazillion oz of gold?

Sirius Wonderblast's picture

If they win, the Krauts can melt the cup down and put it in the Bundesbank vault in place of the stuff they might/might not have at the Fed. First though, they have to beat Argentina, who's economy is in vey public t atters, and may want to flog the statue straightaway. Perhaps they could cut a deal and save a lot of running around?

discopimp's picture

Idiots force everyone into BTC, Be your own bank



agent default's picture

Noe you know why the government secretly love Bitcoin type currencies.  Because if there is no paper, there is no risk for a bank run.

disabledvet's picture

If you allow for "Google deletions" that might make bitcoin untraceable.

I think the Feds have thought this through...but it is an interesting question.

Bitcoin is like "hiding in plain site." Literally "casino capitalism" in the sense of money laundering (in theory) on a truly stupendous scale.

"Just to get my five dollar coffee and bagel at Dunkin Donuts."


That would definitely put a bid in the "printing machine" and make people wonder where all the inflation is.

pitz's picture

Its not confiscation.  It is merely a debt to equity conversion, which is the standard for pretty much all situations where one lends to a corporation.  Don't know why people are making a big deal out of this.  Perhaps the complainers should seek only to lend to credit-worthy borrowers (and banks that lend to credit-worthy borrowers) instead of being irresponsible. 

The equity, especially in a restructured institution, should be quite valuable in and of itself. 

People need to disabuse themselves of the false metaphor that banks actually hold your money for safe-keeping.  They don't.  Banks are like any other borrower or lender out there, playing the game.  Anyone can act as a bank.  Even someone sitting in their basement with a margin account buying stocks on credit is, effectively, acting as a bank. 

robertocarlos's picture

All messangers will be shot.

disabledvet's picture

"Arabic or Robusto?"

Might explain why coffee has been bid to the moon here as well.

Global Observer's picture

Don't know why people are making a big deal out of this.

People are making a big deal of it because ever since deposit insurance was introduced over 80 years ago, people were led to believe and believed that their deposits in retail banks under the insured amount are completely safe, safer than money in the mattress. Few depositors treat their deposit in the banks as loans to the bank.

The equity, especially in a restructured institution, should be quite valuable in and of itself.

It will be worthless if most new equity holders tried to sell their equity at the same time. That is not an unlikely scenario since the very reason they would have been holding that money originally in the bank as deposits instead of as some other assets is because they needed the liquidity. The only way to avoid that would be to take secured loans from the banks against these assets. However that will impose debt servicing cost.

falak pema's picture

the banks have made this crisis and their clients (big ones) will foot the bill (this includes the corporates).

The bitch is to include the tax havened money. That is the key to making this debt jubilee level handed, when it comes. 

trader1's picture

exciting times indeed :-)

robertocarlos's picture

Their next step will be finding out who has money hidden where, and then maybe keeping it under the finders keepers rule of law.

robertocarlos's picture

Good grief! Why don't they just tax the hell out of beer. I'm sure there will be no complaints.

disabledvet's picture

Hmmm. "Try and corner the hops market too."

Long the Farmers Museum in Cooperstown, NY.
Roger Clemons is on the mound and the call is High Cheese.

Advoc8tr's picture

It does seem more "fair" than lumping the problem on the taxpayer. It is just like when any other business goes belly up the creditors all have to line up and take 'pennies on the pound' for what they are owed once the dust settles ?

In an ideal world where people understood what was going on they would avoid risky banks like the plague and thus put them out of business naturally ?  Once a few go down and take the depositors with them maybe people will start looking more carefully at whom they are going to trust their cash with ?

Doesn't bother me either way ... I keep my pittance in phys like a good doomsdayer should and make use of every "tax minimization" scheme I can get my head around  :P


robertocarlos's picture

People who have money in the bank have no clue that it is not their money. Are they in for a surprise.

Advoc8tr's picture

Indeed ... which is exactly what they (we) need.  So long as the majority remain willfiully ignorant of "reality" we will never see change.


It is "their" money in the same sense that the money a 30 day creditor (supplier) is owed is theirs ... when there is no-one (aka Government / Taxpayer) to make good losses from failure then reputation and good will start to matter again.

SilverRhino's picture

How to incite bank runs and poison the well for future fractional reserve banking systems in 3, 2 ... 1

xavi1951's picture

When enough get on the band wagon, hold on to your money or getzeegold now!  Thank you Dodd and Frank!


Youri Carma's picture

BIS lays out plan for how to handle bank failures - Bail-in Plan Included!!!

TheReplacement's picture

You wanna play in their system you gotta pay by their rules.  Honestly, it seems fair.  Better bailins than bailouts.

MeelionDollerBogus's picture

Why stop there? I call for rehypoth-o-bailouts!
Nail every depositor of every bank to stop the failure of just one bank!
And, for a dollar figure far bigger than what's in those accounts so anyone who wants to start a new account will automatically be in the hole!
Cigars & champagne all around, the taxpayers are saved!

AdvancingTime's picture

A bad haircut, in this case means you have been robbed. That may be the case if the government reaches in over a long weekend and steals money from your bank account. This is a horrible precedent to set, and the worst part may be how some people are letting it slip out that it would be fair, or in some way justifiable if it is only on the larger accounts.

It is fine if it only impacts the savings of someone else, the savings of what they see as "the wealthy", the problem is someday they may come for you. I shudder to think what kind of world our children will live in.More about what happened in Cyprus in the article below.\


Sirius Wonderblast's picture

The system of reciprocal loans investments and holdings in European financial insitutions is mind-boggling, as is - having seen this from the inside - their utter determination not to accrue any kind of loss or reserve on their balance sheets. Corrupt to the core. Thus, be certain the true state of these piles of shite is far worse than anyone is letting on, and when one goes they very likely all go.

Me - I haven't had cash on deposit for many a moon.

Burticus's picture

Remember that Dutch Finance Minister DieselBoom warned everyone that the Cyprus robbery was a "template," so don't "act surprised".