Genius: IMF Pronounces Bulgaria's Banks "Safe" Just 2 Weeks Before Bank Run

Tyler Durden's picture

Submitted by Simon Black of Sovereign Man blog,

Earlier this summer, IMF bureaucrats went to Sofia, Bulgaria to study the country’s economic progress.

And roughly a month ago, they released an official report which stated, among other things, that Bulgarian banks are “stable and liquid.”

Talk about epic timing. Because less than two weeks later, Bulgaria’s banking system was in the throes of a full-blown crisis.

There was a run on two of the nation’s largest banks—several hundred million dollars had been withdrawn in a matter of hours.

And the Bulgarian central bank had to step in and take over both of them or risk a collapse in the entire system.

This is the modern miracle of fractional reserve banking.

When you make a deposit, your bank only holds a tiny percentage of that cash.

The rest of it gets loaned out or invested in securities that pay a much higher rate of return than the pitiful amount you receive in interest.

Needless to say, the less money banks hold in reserve, the more money they’re able to invest… and the more profit they make.

This puts their incentives and our incentives at odds. Because as depositors, it’s better for us if the bank holds most (if not all) of our funds.

In typical form, though, governments stepped in to settle this dispute. And a century ago, they sided with the banks.

Because of this, it’s perfectly legal for banks to hold a tiny percentage of customer deposits.

So now, anytime there’s the slightest spook (as happened in Bulgaria), it creates a panic.

Naturally that’s when politicians step in to calm nerves.

In the case of Bulgaria, the EU Commission soothingly announced that “the Bulgarian banking system is well-capitalized and has high levels of liquidity compared to its peers in other member states.”

Whoa whoa wait a minute.

Are these geniuses really saying that the country experiencing a bank run due to its LACK of liquidity is MORE liquid than the rest of Europe??

Yes, that is exactly what they’re saying.

So it begs the question– if Bulgarian banks with their “high levels of liquidity” can suffer such shocks, what can happen to other European banks which are worse off?

I think the lesson here is clear: The people in charge of regulating the system and making these proclamations about bank safety are totally CLUELESS.

Of course they’re going to say that the banks are safe. Of course they’re going to compliment the system’s liquidity and solvency.

But before you entrust your savings to any financial institution, do your research and make sure they are strong enough to withstand any financial shocks.

Start with the jurisdiction first and foremost.

There are many places around the world where banks are literally an order of magnitude safer than those in the West. Hong Kong comes to mind.

Also look at a bank’s liquidity: how much cash do they have as a percentage of customer deposits? Where have they invested the rest of customer funds?

Banks with very high levels of liquidity can better withstand financial shocks. Illiquid banks will have to start selling assets and potentially go bust. Or beg for a bailout.

Some of the biggest names in banking have pitiful levels of liquidity.

JP Morgan, for example, holds 2% of its customer deposits in cash equivalents.

(Conversely I recently met with a bank in Bermuda that holds over 40%…)

This is worth paying attention to. Because the decision of where you hold your hard-earned savings matters.

And Bulgaria shows that the entire system can really be a bunch of smoke and mirrors.

*  *  *

UPDATE: IMF is out today after the utter collapse of Portugal's banking system...

  • *IMF CITES BANK OF PORTUGAL ON POCKETS OF VULNERABILITY
  • *IMF: POCKETS OF VULNERABILITY REMAIN IN PORTUGAL BANKING SYSTEM
  • *IMF SAYS IT DOESN'T COMMENT ON INDIVIDUAL FINL INSTITUTIONS
  • *IMF: PORTUGUESE BANKING SYSTEM ABLE TO ENDURE CRISIS

Bwuahahaha!!!

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ArkansasAngie's picture

They aren't clueless ... they are liars.

Vampyroteuthis infernalis's picture

Why worry when the helicopter will appear at the first sign of trouble? It is hard to call this banking.

lordylord's picture

Whatever majority opinion, official government reports, banks, or MSM says, DO THE OPPOSITE.  You'll be safe knowing that you're probably right.

Muddy1's picture

Note to Simon:  You are ignorant.

"The lesson here is clear: The people in charge of regulating the system and making these proclamations about bank safety are totally clueless.

 

They are not clueless, they know exactly what they are doing.  The second anything like this is said about US banks, is the instant I'll remove any residual cash from my account.

Jlasoon's picture

My thoughts exactly. What's the regulator suppose to say? Don't trust this bank with your hard earned money. It's a scam you're about to be screwed. Of course they know what's going on. That's the whole point. 

RaceToTheBottom's picture

It was a bad two weeks.  Expect more of the same....

Groundhog Day's picture

so we could end this charade if 10% of the savers withdrew all their funds?

what ae we waiting for

Dollarmedes's picture

They are trying to will stability into existence with their pronouncements.

Colonel Klink's picture

It's only terrorism and murder when someone other than the US/ZOG/Isreal does it.

Picture at the bottom of the article is a pretty good depiction of the truth.

Hugh G Rection's picture

Yeah it is.  I need to update the list though, Nutsandyahoo has added another 20+ to his body count today.

Urban Redneck's picture

Simon missed the "other" message... the one that clearly explains the apparent contradiction in "Are these geniuses really saying that the country experiencing a bank run due to its LACK of liquidity is MORE liquid than the rest of Europe?"

DON'T FUCK WITH UNCLE SAM'S DOMINANCE OF PIPLINESTAN, OR WE WILL FUCK YOU AND YOUR WEAK ASS BANKS EVEN WORSE THAN THOSE BITCHEZ IN SOFIA.

That's what my copy of the memo said at least...

but I did't get a copy of Vlad's memo, which probably read basically the same. Moral of the story, unless you like being DP'd by the Energy Complex, stand back and let them duke it out

Silver Bug's picture

Is anyone shocked? The IMF is a complete farce.

 

http://ericsprott.blogspot.ca/

john39's picture

hey, when it gets serious, you have to lie...   but, nothing is serious at the moment, so you can trust us....

AccreditedEYE's picture

This market will never be allowed to drop again. Explosion higher any minute now.

Itchy and Scratchy's picture

Needs to be denied 3 times before it becomes official!

maskone909's picture

yup. lets not forget about the 23452342 revisions too lmfao

Sudden Debt's picture

Like asking road directions to a kid...

i_call_you_my_base's picture

Everything the IMF says is a lie.

crazzziecanuck's picture

Maybe the banks were doing Enron-style accounting?  Maybe they did their own versions of Repo 105 while the IMF was in town looking over the books or something?

No matter how you cut it, what incidents like these scream is don't trust the regulators or the banks.  Neither exists to serve savers and investors.

navy62802's picture

Nah, they're not "clueless." They're corrupt.

NotApplicable's picture

Simon is the one who's clueless. Other than still being wet behind the ears, how can he not understand that all of their efforts go toward managing expectations? The idea that the IMF somehow missed the obvious is beyond asinine.

It was an attempt at front-running damage control. Nothing more.

Otto Zitte's picture

Genius can't be taught. It can be faked, inspired or crushed.

ENTP's picture

They aren't clueless, they know exactly what the issue is.  Its not a policy issue or a regulatory issue or a business decision issue, it is a MATH issue and there is no escaping it.  They will NEVER come out and admit that though, they can only hope that they die before the math problem needs to be balanced.

NOTaREALmerican's picture

"Adults" (predators) lie (bullshit) to the "children" (prey) so the "children" (prey) believe (believe). 

It's all about keeping the "beleivers" childlike.

barre-de-rire's picture

too much passive sheeple, despite existing unplugged people, time it takes to  wake up >50% will never arrive unfortunatly, they are preparing another technological breakthrough ( ibm 3billion in nano, etc.. ) to keep sheeple amazed of the way the world is going.

 

as if computers were not fast enough to make those mother fucking nano sec transaction with fiber optic... what the fuck else  do we need ?   about nothing.. just affordable food, roof above the head, water.

 

better speed up cpu timer for sure... fuck you...

FUCK YOU

 

 

hooligan2009's picture

the authors of the IMF and European Commission are the pigs with their snouts in the trough.

we already know that bank notes are only worth the paper they are printed (at least there is some utility) and now we know that staffers and report writers at these two institutions create negative wealth for anyone that follows their advice. 

you could still argue that if you printed the reports in hard copy you have the same utility as bank notes i suppose.

maybe we should do a little digging, get the names of those responsible, how long it took, who they saw that lied or hid the truth from them, how much their salaries are, how much the bills for hotels, flights, hookers was and who at each of the IMF and European Commission (both unelected psychophantic "pigs in the trough" organizations) sanctioned the reports received and, finally, of course

HOW MANY BILLIONS OF (ULTIMATELY) TAX PAYERS FUNDS WERE (AN WILL BE) ADVANCED TO BULGARIA (AND NOW PORTUGAL) BY THESE PSYCHOPHANTIC ORGANIZATIONS

CPL's picture

The question is, where did they think they were going to run?  LOL

czarangelus's picture

duh, they were trying to prevent one.

barre-de-rire's picture

kinda boring to see attempts of real collapse & as said above, 1st inch outta the line helicopter comes to rain money...

 

cant you americans kill the FED definitivly so we can  finally evolve  ? /s

Tulpa's picture

"Are these geniuses really saying that the country experiencing a bank run due to its LACK of liquidity is MORE liquid than the rest of Europe??"

 

How do you say, "The only liquidity I see here is the puddle of piss refusing to give me my withdrawal" in Bulgarian?

LaForce's picture

"???????????? ??????????, ????? ?????? ? ????????? ?????, ????? ??????? ?? ?? ????? ????????" you are welcome.

 

kchrisc's picture

Not stupid, but revealing.

Bulgaria's banks were as "healthy" as any of the others around--as "healthy" as any ponzi can be that is. Then Bulgaria's pols and crats cut a few of their strings and attached them to Russian strings in support the South Stream pipeline, and well, that can't be allowed to stand.

Israel will get their pipeline, even if it kills a slew of goy.

paddyirishman's picture

too true as long as satans spawn are okay who cares about the goyim, israel is a parasite destroying the United states.

PHantomofthemarkets's picture

The author of this article is an idiot who knows nothing.

If all your articles are of this quality level I seriously doubt anything written here could be true.

Fibank is still Fibank, no government involvment at all. I am a customer and was a couple of days ago there to do my usual banking and there was nobody asking to withdraw all their money. If they would want to do that they can, just like that. That's right, after hundreds of millions were taken by the customers they would still smile at you and close your accounts. No liquidity problem at all

In fact, Fibank made quite some money out of it. They had multiple earnings on fees during that day and most of the money withdrawn was against the old intrest rates which were double of what they are now.
In one year intrest rates on deposits tumbled from around 7% to lower then 5%.
Probably because they had a lack of liquidity...

The bankrun was mostly inspired by political and business games. Fibank shares went down almost 50 % in 2 days and returned to almost normal after that.
It would be very interestinng to know who were the buyers...

The other bank is temporarily closed. For 3 months and it would resume operations after that time. They might need some liquidity but it doesn't seem to be dramatical. The owner is a politician so I guess as soon as he steps to the 'good' side everything will be fine. He was a bit naughty lately and very quickly after that there was a 'bankrun'.

Anyone who compares the Bulgarian bank system with Western Europe or America is just a clueless shithead who really doesn't understand what he is talking about.

PS: I hope those clients don't return then I finally might be served a bit quicker because in every branch you go there were always 10 people before you. If it is 8 now I will be out much quicker.

PS2: I don't trust banks at all. But there are much more banks I completely don't trust, especially outside Bulgaria...

 

UPDATE: The problem with the other bank wasn't liquidity, it was fraud by the major shareholder and politician T.V.
http://www.novinite.com/articles/161967/Conclusions+of+Corporate+Commerc...

Global Observer's picture

The author of this article is an idiot who knows nothing.

Agree. Banks can never become lliquid (except for the brief time it takes for the Central Bank to print and provide the cash), only insolvent. The very purpose of a Central Bank is to provide liquidity to solvent banks. If a bank is running out of vault cash, it must ask for more vault cash from the Central Bank and the Central Bank must provide it. Neither has a choice in the matter. But in the process, a bank may have to borrow from the Central Bank at an interest and that borrowing cost may lead a bank to go from being solvent to becoming insolvent, especially if it has a large percentage of non-performing assets.

PHantomofthemarkets's picture

Update 2:

The sums of EUR 93 139 500, BGN 23 657 575 and USD 45 000, equalling to a total of BGN 205 887 223 were “taken out of the bank vaults, in cash, in sacks”.

http://www.novinite.com/articles/161972/Bulgaria%27s+Chief+Prosecutor+Su...

So far the lack of liquidity at Bulgarian banks..

voxpopuli's picture

Maybe it could be interesting to make a small classification among institutes as follows:

end of first quarter balance sheet cash on hand / number of account holders

All above should be public information. Just to assess how much cash per account holder would be readily available in case of a run, so that everyone could estimate how much of his account balance would be at potential risk ...

tony bonn's picture

bankster = liar = satanist.

gcjohns1971's picture

"I think the lesson here is clear: The people in charge of regulating the system and making these proclamations about bank safety are totally CLUELESS."

 

NO.  NO THEY ARE NOT CLUELESS. THEY ARE FRAUDULENT.

They didn't need to visit Bulgaria to examine the books.  This is a digital age. We can all examine their books from essentially anywhere.

They went to Bulgaria to pick up their payoffs.


nailgunnin4you's picture

But before you entrust your savings to any financial institution, do your research and make sure they are strong enough to withstand any financial shocks.

 

i'm aware that you must apply due diligence when using banks, but I must admit I am completely ignorant when it comes to researching a bank's safety or risk. I don't currently have any money in any bank, but where would I go to conduct research on prospective banks should I want to deposit with them? Any info appreciated, thanks.

LaForce's picture

Reserves in BG banks are set to 10% (EU and elsewhere its 3%) and upon that the Ministry of Finance regulated it with another 10% of capital untop of thet in 2010 i think= So Bulgaria's banks are safer by design than virtually any other bank in the world of fractional reserve (also monetary board makes the Lev hardwired to the Euro so no FX speculation can change the state of internal financial sys)=

The big problem is that we are so fucking propaganda vulnerable... the recent psi ops of USA have teached our local crocks a trick or two.. so there you got it the engineered panic by methods of propaganda and mob-ery.

and further when there is no connection between face value of moneys and real world the only connection is peoples trust... and its vulnerable think you know...

PS. excuse my spelling

AdvancingTime's picture

Fact is the IMF is a tool of the Western developed countries that provide its funding. This means that when the IMF rubber stamps their policy it means very little and we should not be reassured.

The pool of money the IMF loans and redistributes around the world helps to stabilize countries if they are failing or economically unstable.  But many people do not understand who, and how they are funded. While the IMF exerts a fair amount of influence, it is political in nature and pushes the way the wind blows.

This bring up the issue and questions as to how muddled this system is. With a loud voice the IMF is overrated, it often uses only a small amount of money to make the very desperate march in line, at times this means not solving problems but helping to kick the can down the road. For more on the IMF see the article below.

 http://brucewilds.blogspot.com/2013/04/imf-overrated-institution.html

 

mastersnark's picture

To be fair, Bulgarian is a difficult language to read and lots of times "lack of cash" is mistranslated as "lots of cash" and "borrower has gone bankrupt" is mistranslated as "profitable loan."