This page has been archived and commenting is disabled.
Will Greek Depositors Under €100,000 Be Spared In Case Of A "Bail-In"
One week ago, we first explained that as the Cyprus bail-in "blueprint" scenario unfolds, the one final, and most important, remaining variable in the ongoing Greek drama, soon to devolve to tragedy, is how big the ECB's ELA haircuts would be in the case of a No vote, which would be the first catalyst of a depositor haircut.
Then, overnight, in a report since denied by both the Greek finance ministry and by the European Banking Authority Plan, the pro-Europe FT did yet another hit piece on Greece desperate to push those Greek voters on the fence ahead of tomorrow's referendum to vote "Yes" (just think of the lost advertising revenue if say Deutsche Bank were to go under).
Greek banks are preparing contingency plans for a possible “bail-in” of depositors amid fears the country is heading for financial collapse, bankers and businesspeople with knowledge of the measures said on Friday.
The plans, which call for a “haircut” of at least 30 per cent on deposits above €8,000, sketch out an increasingly likely scenario for at least one bank, the sources said.
Ignoring whether the FT is now merely a venue used by conflicted parties to publish pro-Europe, anti-Syriza hit piecestthat benefit "bankers and businesspeople with knowledge of the measures" and are promptly refuted, the article does bring up a relevant point: if the ECB does escalate the ELA collateral haircuts, something we analyzed in our own piece last week, what kind of haircut scenarios are possible, and will "insured" deposits under €100,000 be indeed made whole, or will the bail-in affect, as the FT suggested, everyone with over €8,000 in savings?
Regarding the first part of the question, what are the possible scenarios, JPM had this to say yesterday when evaluating the history of bail-ins in Europe in recent years:
If the deterioration in asset quality means there is no sufficient collateral to cover ELA claims, either the ECB (via its ELA residual claim) or domestic depositors will have to suffer a loss. Our understanding is that there are no clear rules on whether this ELA residual claim will be ranked above depositors or not. In fact EU policymakers adopted different and inconsistent approaches in the past when faced with bank insolvencies:
- In the case of Cypriot banks, depositors were hit while senior bond holders were spared, so seniority was not respected. ELA claims were also protected.
- Deposits of foreign branches were protected in the case of Cyprus while deposits of domestic branches were hit. This is the opposite of what happened to Iceland.
- In the case of Ireland, which also had a big banking system relative to the size of its economy, only sub debt holders, accounting for a very small portion of total creditors, were hit. No depositors were hit, in either domestic or foreign branches.
- In the case of SNS, sub debt holders were wiped out and reports suggest that the Dutch government came close to imposing losses on senior bond holders and was only prevented from doing so because of unsecured intergroup loans between SNS bank and Reaal insurance that would be subjected to the same losses as senior bond holders.
In other words, Europe will do what it always does: make it up as it goes alone. However, one notable difference between Cyprus and Greece is that the former held the deposits of a number of wealthy Russian oligarchs, which skewed the deposit distribution a la the 80/20 rule, and permitted smaller depositors to be saved while the Russians took the bulk of the hits (an outcome which according to some led to the suicide of Russian billionaire in exile, Boris Berezovsky).
Unlike Cyprus, Greece does not have the luxury of several massive depositors. In fact, according to JPM, the distribution of deposits appears to be relatively flat. JPM continues:
... under a stress scenario of prolonged impasse, Greek depositors will be likely hit while ELA claims are protected. There is currently €120bn of deposits with Greek banks. A haircut increase on ELA collateral assets from our currently estimated level of 43% to 60%, for example, would require a €26bn deposit haircut or 20% of outstanding bank deposits assuming for simplicity no available buffer from shareholders or bond holders. A bigger increase in the collateral haircut, for example to 75%, would require a €50bn deposit haircut or 40% of outstanding bank deposits.
Whereas we disagree with JPM's calculation due to our baseline assumption that the current haircut level is more in the 48% region, we do agree with the directionality. As a reminder, this was our own math as laid out last week:
But what does this mean for ordinary Greeks, those who have negligible amounts still held by Greek banks despite our recurring pleas to withdraw their funds ahead of just this eventuality? Sadly, nothing good. Here is JPM's conclusion:
Could deposits below €100k be protected as it happened in Cyprus? The answer depends on the total amount of deposits above €100k. If there are enough of these large deposits above €100k, then most likely any required deposit haircut will be inflicted on these depositors only. There are no recent data on how big this universe of large deposits is. The most recent data from the European Commission suggest that at the end of 2012, covered (i.e. those below €100k) represented 75% of eligible Greek deposits. We suspect this number is now significantly higher leaving little room for depositors with less than €100k to be spared. And the reserves that the Greek state has to back its bank deposit guarantee are miniscule, likely not more than a couple of billions euros.
Which means that unlike Cyprus, which was mostly a targeted punitive bail-in aimed almost entirely at Russian oligarchs, should the ECB indeed enact ELA haircuts which it may have to do as soon as Monday in the case of a No vote, it will be the ordinary Greeks who will see their already meager savings get haircut even more, anywhere between 30%, potentially up to 100% if the ECB were to announce the entire ELA no longer legal, pulls all funding and locks up Greek bank collateral.
Will the ECB do that? We don't know, however Varoufakis' gambit is simple: should the ECB engage the full Greek haircut it will incite an immediate panic and risks a run on other peripheral banks and the true spread of Greek contagion to Italy, Spain, Portugal and all other economically crushed countries where an anti-austerity politician is a frontrunner for the next leadership position. Such as France.
»
- 11119 reads
- Printer-friendly version
- Send to friend
- advertisements -
Even if they vote yes I'm thinking they will be bailed in anyway.
An example for the others.
so, since the depositor insurance is terribly underfunded(just like the FDIC) how would the greek govt insure them? they sure as hell aren't going to be able to squeeze it out in taxes, they pretty much can't borrow anymore money, and they don't have their own currency that can just be printed. RIght?
greenskeeper - To me the obvious answer as to how the greek govt insure accounts is to say, okay folks everybody is allowed to keep say €8000. Any amount of euros deposited above and beyond that gets confiscated and replaced with these shiny new drachmas. Party on Greece.
i get that, but if they go from saying 'anything up to 100k is insured by the govt' to 'anything over 8k is gone' thats going to shake confidence in the banking system, which obviously isnt something they want(it is something I want, since I want this whole corrupt ediface gone ASAP). That insurance by all govts becomes meaningless if they just change the number arbitrarily as soon as something bad happens
Methinks 99% of all large deposit holders have long ago flown the coop.
I am no 1 percenter and I bought a house for my mother in law. She sits there on her fat ass living rent free. Yeah, I think most of the large depositors with a brain have flown the coop here in the US and abroad.
Calm discussions of tyranny, looting, and evil on an epic scale.
Put any spin on it you like, give any name you fancy....at the end of the day it is nothing but bloody theft!!!!!!
Bail-in is sure for yes vote.
But uncertain for no vote.
This scenario would only bolster Syriza in the elections that would follow. Let them come I say.
The Germans want elections.
Syriza would be crazy to grant them that wish.
http://www.ekathimerini.com/198935/article/ekathimerini/business/eba-chi...
"I highly doubt that any authority or public body at EU or Member State level could consider this option, as it would be against EU law and the EBA would immediately start breach of EU law proceedings," Enria added.
There are serious legality issues in both EU law as well as Greek law (no provision is made for such practices). They are really poking the hornet's nest.
Also, panic would spread throughout the entire Eurozone. This is a matter of mass psychology, no amount of logic can contain panic once it sets in.
The law is how they control the serfs.its purely an amusement for TPTB,not
a constraint, in any shape ,form or manner.
Cash is a Contract too...at least US money is.
The Federal Government broke that Contract in 2008...but look who wound up paying MOAR...
I read that with a large pinch of salt. As far as I know, bail-ins are now legitimate in all EZ member states. The only unknown is where they would start.
Debt to equity conversions, or bail-ins have always been SOP throughout the banking system. I don't see what the big deal is. People who lend money to deadbeats, including non-productive bankers and wasteful governments deserve to suffer the consequences of their actions.
"it’s the victim of a structure that makes it possible to unload the losses of the big countries’ failing financial systems onto the shoulders of the smaller. "
Hu? What the funk does this mean? Greece was failing!
A One-Off Capital Levy?
- IMF
IMF Fiscal Monitor "Taxing Times" 2013, page 49 -
https://www.imf.org/external/pubs/ft/fm/2013/02/pdf/fm1302.pdf
Isn't a capital levy just another name for bail-in or tax?
Yep.
Again..."can't get blood from a turnip." The Greek Banks open "as normal"...well, everyone will just go about heir business?
I would think everyone EVERYWHERE would withdraw all their money if that happens...
It won't happen in the rest of Europe. We're fine!
:)
Yeah but its a surprise tax.
Surprise your money's gone!
:)
Greece has fallen victim of economic hitmen .
http://www.sott.net/article/298645-An-Economic-Hit-Man-speaks-out-John-P...
You're conveniently omitting some important info in regards to the Cypress bailout. Cypress banks offered around 8% interest on deposits.
How did they offer that much interest on your deposit in ZIRP environment you ask!? Ahh, through high risk investments in the junk bond market. Very important difference from your average bank!
Fucking hell! I thought the MSN was dishonest and now I got to come to ZH and have bullshit shovelled into my mouth by you guys too!
Thanks Tyler, a very timely article which vindicates my numerous comments in a thread yesterday:
http://www.zerohedge.com/news/2015-07-03/greek-banks-considering-30-hair...
The uncertainty of safety of deposits below the EUR100,000 (GBP 85,000) threshold remains. The UK.gov in its own implementation document alludes to this. Anyone who thinks otherwise is in foolish denial as to the risk.
"Sivad UK", come out come out wherever you are ;-)
so in Cyprus .... or anywhere else was the bail in per account or per person.?
Does anyone know ??
If the banksters steal your savings, exterminate them. Then grab their wallets and immediately charge up their credit and debit cards to their limits.
Blatant outright theft deserves appropriate response, not a "civilized" discussion of how much the thieves should leave for you, as if your savings belongs to the thieves. Sheesh!
Best to wipe as many of the depositors out as possible, as punishment for their sheer stupidity in making unsecured loans to the banksters.
The reaction of the serfs should be, take my money and we'll burn every fucking bank and government office to the ground!
You do that crap and all those scumbags deserve to hang.
Greece should declare war on Brussels if that happens