“Bail In Regime” Sees UK Banking System Downgraded To "Negative"

GoldCore's picture

UK Banking System Downgraded To Negative Due To “Bail In Regime”
Bank of England plans to make bondholders and depositors bear the cost of bailing out failing banks has led Moody’s to downgrade its outlook on the UK banking sector.

Bail In Infographic International Edition.JPG

The rating agency said that it had changed its outlook for the UK financial system from “stable” to “negative”, citing the developing global “bail in regime” of creditor and depositor bail-in.

Depositors in some Cyprus banks saw 50% or more of their life savings confiscated overnight.

Central banks claim that it is an attempt to ensure that taxpayers do not pick up the bill in the event of a bank getting into trouble again. However, it appears to be the case that the stealth global bail-in regimes brought in by the Federal Reserve, Bank of England and ECB are again protecting certain banks at the expense of creditors including depositors and potentially the wider economy.    

There is a real risk that individual savers and companies will be forced to bail out profligate banks and have their savings and capital confiscated as happened in Cyprus. There has been little information provided and little debate about the risks and ramifications of bail ins.

In the financial crisis of 2008, UK taxpayers were forced to provide more than £60 billion in direct support to HBOS and Royal Bank of Scotland as they came close to collapse, as well as hundreds of billions of pounds in taxpayer-guaranteed loans and loss insurance.

Under the incoming credit bail-in regime, bondholders would be the first in line, after shareholders, to take any losses - then depositors.

Officials led by Mark Carney, the Bank of England governor, are attempting to bridge sharp differences among leading G20 countries as they prepare a landmark set of proposals aimed at ensuring bail-in legislation is adopted in G20 nations, the Financial Times reported two weeks ago.

Talks under the auspices of the global Financial Stability Board (FSB) over the summer are approaching a key stage as officials aim to clinch an agreement on bail-ins and the bailing in of creditors including depositors of banks.

Japan is one of the countries with problems with bail-in plans amid concerns that they are not easily compatible with the structure of its banking system. Its banks are heavily deposit-funded, and officials are uncomfortable about the idea of bail-ins.

Japanese banks are already vulnerable and bail-ins could hurt consumer sentiment in the already struggling Japanese economy. Concerns in Tokyo are said to be sufficiently profound for it to push its case right up to the summit itself.


China is also sceptical about the notion of private sector bail-ins given its banks are state-owned. “There are some very entrenched positions,” one official told the FT. Russia is likely to oppose the coming bail-in regime as well as many other large creditor nations.

The BOE’s Carney, who also chairs the FSB, said in March he wanted to “break the back” of the issue this year.

Moody’s said the reforms meant that its assumption of government support for UK banks would decline and that, despite improvements in the financial stability and profitability of Britain’s biggest lenders, it had a long-term “negative outlook” for the sector.

Carlos Suarez Duarte, a senior analyst at Moody’s, said that the “key driver of the change in outlook is that the UK government is now able to finalise the secondary legislation to implement the structural reforms relating to the UK resolution and bail-in regime and the related ring-fencing framework.”


Moodys largely ignored, as did much of the media coverage of their report, the real risk that bail-ins pose to people’s life savings and companies capital, the likely negative impact of this on consumer sentiment and employment in already fragile economies.

Depositors and those who have worked hard and been prudent and put capital aside or saved for a rainy day look set to be penalised again.

Bail-ins or deposit confiscation are coming to banks in the western world. Must read guide to and research on Bail-ins can be read here: Protecting your Savings In The Coming Bail-In Era

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Burticus's picture

Ah, "reform"...govspeak for creating a disaster with their meddling, then using it as an excuse to grab more power and FeRNs/Euros/Pounds and create an even bigger catastrophe.

Remember how, in an odd moment of truthiness, Dutch finance minister DieselBoom warned us a year ago that Cyprus was a "template."

At least they can't rob my few remaining silver coins (after the tragic sailing mishap) with the click of a mouse.

Buzz Hacksaw's picture

The way I see it is that the casino's tables are now more tilted. Now the banks can rely on our savings and our tax dollars for their addiction to money. Just imagine you go to a casino you have not bet a dime although you are staying in one of their rooms, and the house looses big while you are there. Next they line up every guest in the facility and take a portion of their cash and cover their loss. My advice, get out of the casino.

Obamanism's picture

The Public and Business are over a barrel . They have to take the hit for these bail ins. If a mass protest happens and evryone moves their money from one bank to another leaving THE bank to try a bail in with few customers. Will the Government force bail ins in the other banks to keep the other bank from failing or will a bank buy the failing bank and force the bail in so its customers have to save an bank they were not in.

I doubt at election time this will be mention or a major point unless bail ins happen just now.

Squid-puppets a-go-go's picture

yup, buy shares in matress companies.

OTOH, its encouraging that moody's is taking this old shool prudence stance. Watch London sue them now like the US did to Fitch

canstacker's picture

Canada introduced a bail in regime in the 2013 federal budget

RaceToTheBottom's picture

I thought I had read here about Austria's weak banks.  Yet not on the bottom of this list.

Ban KKiller's picture

No down grade for laundering drug cartel money? Ok, then.

Sandmann's picture

Secondary Legislation - ie using the Enabling Act with the Government filling in the blanks.

Lloyds Bank wiped out shareholders not bondholders in 2008

HBOS was insolvent and had paid dividends in prior years illegally

Coop Bank is insolvent yet trading

garypaul's picture

Yeah and the thing I can't understand, is that Banco Espirito Santo took the shares to zero, yet investors were relieved over the bailout?? If I owned bank shares anywhere, wouldn't I think about selling soon???