ECB Proposes End To Deposit Protection

Tyler Durden's picture

Submitted by GoldCore

It is the 'opinion of the European Central Bank' that the deposit protection scheme is no longer necessary:

'covered deposits and claims under investor compensation schemes should be replaced by limited discretionary exemptions to be granted by the competent authority in order to retain a degree of flexibility.'

To translate the legalese jargon of the ECB bureaucrats this could mean that the current €100,000 (£85,000) deposit level currently protected in the event of a bail-in may soon be no more. But worry not fellow savers, as the ECB is fully aware of the uproar this may cause so they have been kind enough to propose that:

"...during a transitional period, depositors should have access to an appropriate amount of their covered deposits to cover the cost of living within five working days of a request."

So that's a relief, you'll only need to wait five days for some 'competent authority' to deem what is an 'appropriate amount' of your own money for you to have access to in order eat, pay bills and get to work.

The above has been taken from an ECB paper published on 8 November 2017 entitled 'on revisions to the Union crisis management framework'.

It's 58 pages long, the majority of which are proposed amendments to the Union crisis management framework and the current text of the Capital Requirements Directive (CRD).

It's pretty boring reading but there are some key snippets which should be raising a few alarms. It is evidence that once again a central bank can keep manipulating situations well beyond the likes of monetary policy. It is also a lesson for savers to diversify their assets in order to reduce their exposure to counterparty risks.

Bail-ins, who are they for?

According to the May 2016 Financial Stability Review, the EU bail-in tool is 'welcome' as it:

 
 

...contributes to reducing the burden on taxpayers when resolving large, systemic financial institutions and mitigates some of the moral hazard incentives associated with too-big-to-fail institutions.

As we have discussed in the past, we're confused by the apparent separation between 'taxpayer' and those who have put their hard-earned cash into the bank. After all, are they not taxpayers? This doesn't matter, believes Matthew C.Klein in the FT who recently argued that "Bail-ins are theoretically preferable because they preserve market discipline without causing undue harm to innocent people."

 

Ultimately bail-ins are so central banks can keep their merry game of easy money and irresponsibility going. They have been sanctioned because rather than fix and learn from the mess of the bailouts nearly a decade ago, they have just decided to find an even bigger band-aid to patch up the system.

 
 

'Bailouts, by contrast, are unfair and inefficient. Governments tend to do them, however, out of misplaced concern about “preserving the system”. This stokes (justified) resentment that elites care about protecting their friends more than they care about helping regular people.' - Matthew C. Klein

But what about the regular people who have placed their money in the bank, believing they're safe from another financial crisis? Are they not 'innocent' and deserving of protection?

When Klein wrote his latest on bail-ins, it was just over a week before the release of this latest ECB paper. With fairness to Klein at the time of his writing depositors with less than €100,000 in the bank were protected under the terms of the ECB covered deposit rules.

This still seemed absurd to us who thought it questionable that anyone's money in the bank could suddenly be sanctioned for use to prop up an ailing institution. We have regularly pointed out that just because there is currently a protected level at which deposits will not be pilfered, this could change at any minute.

The latest proposed amendments suggest this is about to happen.

 

Why change the bail-in rules?

The ECB's 58-page amendment proposal is tough going but it is about halfway through when you come across the suggestion that 'covered deposits' no longer need to be protected. This is determined because the ECB is concerned about a run on the failing bank:

 
 

If the failure of a bank appears to be imminent, a substantial number of covered depositors might still withdraw their funds immediately in order to ensure uninterrupted access or because they have no faith in the guarantee scheme.

This could be particularly damning for big banks and cause a further crisis of confidence in the system:

 
 

Such a scenario is particularly likely for large banks, where the sheer amount of covered deposits might erode confidence in the capacity of the deposit guarantee scheme. In such a scenario, if the scope of the moratorium power does not include covered deposits, the moratorium might alert covered depositors of the strong possibility that the institution has a failing or likely to fail assessment.

Therefore, argue the ECB the current moratorium that protects deposits could be 'counterproductive'. (For the banks, obviously, not for the people whose money it really is:

 
 

The moratorium would therefore be counterproductive, causing a bank run instead of preventing it. Such an outcome could be detrimental to the bank’s orderly resolution, which could ultimately cause severe harm to creditors and significantly strain the deposit guarantee scheme. In addition, such an exemption could lead to a worse treatment for depositor funded banks, as the exemption needs to be factored in when determining the seriousness of the liquidity situation of the bank. Finally, any potential technical impediments may require further assessment.

The ECB instead proposes that 'certain safeguards' be put in place to allow restricted access to deposits...for no more than five working days. But let's see how long that lasts for.

 
 

Therefore, an exception for covered depositors from the application of the moratorium would cast serious doubts on the overall usefulness of the tool. Instead of mandating a general exemption, the BRRD should instead include certain safeguards to protect the rights of depositors, such as clear communication on when access will be regained and a restriction of the suspension to a maximum of five working days by avoiding a cumulative use by the competent authority and the resolution authority.

Even after a year of studying and reading bail-ins I am still horrified that something like this is deemed to be preferable and fairer to other solutions, namely fixing the banking system. The bureaucrats running the EU and ECB are still blind to the pain such proposals can cause and have caused.

Look to Italy for damage prevention

At the beginning of the month, we explained how the banking meltdown in Veneto Italy destroyed 200,000 savers and 40,000 businesses.

In that same article, we outlined how exposed Italians were to the banking system. Over €31 billion of sub-retail bonds have been sold to everyday savers, investors, and pensioners. It is these bonds that will be sucked into the sinkhole each time a bank goes under.

A 2015 IMF study found that the majority of Italy’s 15 largest banks a bank rescue would ‘imply bail-in of retail investors of subordinated debt’. Only two-thirds of potential bail-ins would affect senior bond-holders, i.e. those who are most likely to be institutional investors rather than pensioners with limited funds.

Why is this the case? As we have previously explained:

 
 

Bondholders are seen as creditors. The same type of creditor that EU rules state must take responsibility for a bank’s financial failure, rather than the taxpayer. This is a bail-in scenario.

 

In a bail-in scenario the type of junior bonds held by the retail investors in the street is the first to take the hit. When the world’s oldest bank Monte dei Paschi di Siena collapsed ordinary people (who also happen to be taxpayers) owned €5 billion ($5.5 billion) of subordinated debt. It vanished.

Despite the biggest bail-in in history occurring within the EU, few people have paid attention and protested against such measures. A bail-in is not unique to Italy, it is possible for all those living and banking within the EU.

Yet, so far there have been no protests. We're not talking about protesting on the streets, we're talking about protesting where it hurts - with your money.

As we have seen from the EU's response to Brexit and Catalonia, officials could not give two hoots about the grievances of its citizens. So when it comes to banking there is little point in expressing disgust in the same way. Instead, investors must take stock and assess the best way for them to protect their savings from the tyranny of central bank policy.

To refresh your memory, the ECB is proposing that in the event of a bail-in it will give you an allowance from your own savings. An allowance it will control:

"...during a transitional period, depositors should have access to an appropriate amount of their covered deposits to cover the cost of living within five working days of a request."

Savers should be looking for means in which they can keep their money within instant reach and their reach only. At this point physical, allocated and segregated gold and silver comes to mind. This gives you outright legal ownership. There are no counterparties who can claim it is legally theirs (unlike with cash in the bank) or legislation that rules they get first dibs on it. Gold and silver are the financial insurance against bail-ins, political mismanagement, and overreaching government bodies. As each year goes by it becomes more pertinent than ever to protect yourself from such risks.

 

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falak pema's picture

This should send local and blockchained cyrptos, on a regional basis, to the moon !

b-sugar's picture

No, it's just another fee for the banker to add if you want to keep enjoying that security.

Let me guess; long crypto are you? 

Yukon Cornholius's picture

I wonder if Draghi can catch bullets with his teeth?

Arturo's picture

Why do we fuck need banks then?

Moooonero to the moon.

Whoa Dammit's picture

 


 Limited discretionary exemptions to be granted by the competent authority = the elite and connected get theirs, you don't.

Stuck on Zero's picture

So if you withdraw your money from the bank and buy cryptocurrency does the seller deposit that money in the bank?

07564111's picture

I wager that police and military are exempt from this shit...they got big guns. :D :D :D

Folkvar's picture

The sad thing is the majority of people will accept losing money this way as they'll be told it's in their best interest and the interest of their children, or some other BS. Of course they'll blame us for having to do this too as they always do. It's your fault for borrowing too much they'll say.

Five Star's picture

The Eurozone has seen nearly the worst economic growth in the entire world:

http://thesoundingline.com/ranking-worlds-economic-growth-21st-century-g...

BaBaBouy's picture

Paper Fiats = Paper Fucking Fiats ... "Paper"

No wonder Painting are now selling at records a La $450 Mill ...

Own Hard Assets .....

 

Manthong's picture

 

Awshit…..

Deposit Protection  ??????????????????

It’s a scam…..

Since a few years ago

Anything you think you have in some big bank is just their gambling money…………………..

BuddyEffed's picture

Depleting your natural resources is akin to depleting your banks from the looks of this.

Maybe the ECB needs to add a clause to lock up their elites under hotel custody as the ultimate bank backstop.

/sarc

philipat's picture

WRT Item 4 in the list, if you don't hold it you don't own it. Do you really think that a failing Bank would recognise your legal ownership of Gold in its possession? If so, I have a neat bridge for sale in Brooklyn.....

Bes's picture

FDIC

folds in

3..... 2...... 1......

------

don't believe it, why is

TRUMP et al

silent on the

war on cash????

hahahahahahaha

zorba THE GREEK's picture

Anyone who is dumb enough to have most of their wealth in banks and paper assets, deserves to lose it. 

eforce's picture

Whereas in the UK the depositor protection is getting stronger, banks forced to sell off CFD's, ring-fence personal banking from everything else and the protection scheme is still exists.

Looks like the EUSSR getting ready for implosion, once UK leaves the financial blackhole will be too wide to cover IMO.

chiaroscuro's picture

So in 2008 did Congress raise the FDIC deposit insurance coverage from $100,000 to $250,000 just so the banks would have more cash to bail-in during the next financial meltdown? 

earleflorida's picture

usury inverted...

'compounding' your misery!

you go FRB System

OT:  did a master of the cabal just bite the dust?     Plane/helicopter collision over Rothschilds property--- 5 dead?

https://www.youtube.com/watch?v=aCvBgSvSZPg  

Paul Kersey's picture

So here's the deal,the EU banks do away with cash, and then they can just steal every depositor's savings. Yeah, that's the ticket!

http://www.nbc.com/saturday-night-live/video/liars/n9373?snl=1

HowdyDoody's picture

There was the pretense of protection ... and it's gone.

Clashfan's picture

fake news

no Rs live there anymore

museum property

no Rs died

flight school nearby, most likely accident

Conscious Reviver's picture

Ok,  maybe you cleared that one up, but what about Marines storming Langley??

Re. The article, some time after 2008, I believe the equivalent protections were removed in Amerika.

QueeroHedge's picture

Oh no my wealth is at the behest of the banks.

 

Just kidding bitcoin niggaz

dasein211's picture

I think the Central Banks know a Middle East war would tank a fuck load of the economy. I believe the Bitcoin move today was based on this- not Zimbabwe.

wildbad's picture

not even paper...DIGITS. a debt based digital ponzi scheme.

zirp, now insurance..the only thing banks offer other than killing you with fees is transactional simplicity.

i can live without that too.

harleyjohn45's picture

No one will lose their money, The FED will print.  You will always have your money, it will be worthless.  Its called inflation.

JRobby's picture

That, as everyone well knows is key when chaos erupts.

After all, police and military are "regular people" with families,  from a financial standpoint and won't protect the elite and their property if they are not paid. 

Folkvar's picture

Is that a rhetorical question? If not the answer is yes.

Xena fobe's picture

Maybe they buy PMs.  Or Yuan. 

harleyjohn45's picture

No, you buy crypto and they give you a wallet with a password.  Now all you have to do is find a grocery store that will accept bitcoin.  Don't lost that password, because then all your crypto will be lost.

JRobby's picture

"Laugh Track Deafening !!!!"

RUN !!!!

runswithscissors's picture

Its really simple...if you don't want your money to get stolen by the filthy thieving joos, don't put it in the bank!

Bigly's picture

Feeling a little trapped, fellow bitchez?

A Sentinel's picture

This shows either that they’re buffoons or that they know their printing is about to explode the system. Unless you’re desperate, you screw people with this AFTER you go cashless - then they’re doomed. This lets the little guy put some cash under the mattress.

I’ going to go with “they’re drivelling idiots.”

44magnum's picture

Becuase they want us to need them. Legal tender laws, Small demnomination bills only. Its a monopoly on cash. their money their rules.

Scornd's picture

you cant work withput banks, they took over

Giant Meteor's picture

'covered deposits and claims under investor compensation schemes should be replaced by limited discretionary exemptions to be granted by the competent authority in order to retain a degree of flexibility.'

I'm laughing so hard, I've got tears streaming down my eyes ..

Annnd it's gone, it'a all gone ..

Next customer please !

waspwench's picture

Well, obviously we don't need them. If a bank is not a safe place to store money, then there is no point in storing your money there.

What is obvious here is what the bank's next move will be. Once there is no deposit protection then your cash can be confiscated without anyone having to compensate you - and it will be.

The cashless society will require you to keep all your wealth in the bank and the bank can confiscate it at will.

Rhetorical's picture

Check out Zencash.

Its a full payment and communication system rolled into one. Though I do  like XMR too.

 

Also more and more exchanges are going to ass fiat to crypto gateways for consumers. Allowing people to send crypto totheir banks for .1% fees or less. Letting people send money into fiat as they  need it instead of risking all their money in a bail  in.

 

Though there are risks 

IH8OBAMA's picture

Without governement insured deposits you are going to see runs on banks when any negative news comes out about a bank.  The public expects that the government will make their money they put in a bank safe.  The ECB has lost its mind making this suggestion.

 

Government needs you to pay taxes's picture

If this doesnt send the signal to GET YOUR MONEY OUT YESTERDAY, you probably dont have a pulse.

A. Boaty's picture

It should cause a bank run but it won't because stupid.

chubbar's picture

I don't know whether it is because this type of information is not generally known or because people are so zombied out with information overload that they no longer are able to make cognitive decisions, but I don't understand why people are not putting their money into assets that will survive the banking shitstorm that is almost here?

Why aren't gold & silver being bought hand over fist? Hell, why isn't storable food being bought hand over fist? When this monetary system crashes (not if), the JIT (just in time) delivery system crashes as well from lack of credit. This isn't some theoretical argument, it's going to happen for some unknown period of time. If that period of time is more than about 3 days, widespread looting and rioting WILL occur. This will happen wherever the dindus are regardless, but I'm talking mainstream america here.

The FDIC only has less than 1% of insured deposits covered by actual premiums, the rest will probably be backstopped by the FED. Even so, the banks are so highly levered that only QE to the nth power is going to help them survive. It's a fucking ridiculous system. If/when QE hits, the purchasing power of the dollar is going to plummet, then what?

The question I have is what is plan B? If we know about the problem you can bet that there are a lot of people in both the FED and gov't working out a plan for after the collapse. I just wonder what that plan is and whether it is really sustainable? Some part of me actually wonders whether they want to roll out a plan B or if they are just going to scurry into their bunkers and wait out the carnage? Perhaps they are hoping to get down to 500 million survivors by pulling the plug on this system? Whatever the answer, WHEN this hits, it's going to get very ugly.

Government needs you to pay taxes's picture

Post 1945, the world experienced massive Federalization/supranationalization in trade/banking/politics.  This isnt the primary cause of the unsustainability, but rather the canard that printing more money = creating wealth, which is massively enabled by the fractional banking system, which is massively enabled by fiatbux. Theorietically, the weatlh of the world is far greater than the total value of gold/silver/precious metals mined.  Philosophers have written about 'productive capacity', accountants describe IP, and intangible assets.  These are real, but like art, value is in the eye of the beholder.  .Gov must either run away or attempt to bring overwhelming force.  Nobody is taking my land or my equipment or my assets without paying as high a disproportionate price as I can devise and execute prior to expiring.  The answer should be an equally large swing to the local.  This wont happen, IMO, unitl the Federal forces exhaust themselves or are beaten in battle (asymmetric).

earleflorida's picture

It does matter...

Who the fuck is Morgan Stanley[?], and since *'1854' how has it remained under the radar of financial secrecy?!?   (using Glass-Steagall as a springboard?) 

TimeLine: *Origins....1930s....---2008,...with some audio with navigation bar at bottom.        https://www.morganstanley.com/about/company/historyflashpresentation/tim...          ** redirects to site; click adobe

Note: Timeline 'STOPS' with the 'Crash of (2007) 2008!   

Scornd's picture

its because banker and elitist families like Carnegie's and Rockefeller's have been steering public education since
the 60s to make everyone stupid lever pullers

Xena fobe's picture

Most people are net debtors. And no place to store anything.

JRobby's picture

CB's repress the price of PM's 24/7

The position of "deposits" in bank liquidations was moved downward 3 years ago.

The FDIC merges banks (often with a TBTF) rarely paying off depositors, taking on the bad loans and giving the good loans to the purchasing bank. Yes, a bailout.

Obviously, this is a larger issue in the EU because there are many troubled banks and no one to "take them in" (Italy, Spain, etc.)

 

 

 

harleyjohn45's picture

First off, 70% of Americans can't raise 1000.00 for an emergency.  The last thing they need is to buy gold.  The actual amount of Americans who can afford gold is probably the top 10 percent of the USA.  Most of those don't even believe in gold and would never buy it.  I can count on 1 hand the number of people that I personally know who hold any metals.  A 2017 dollar will only buy 16.3 cents of what a 1970 dollar dollar would buy.  None of us, including me actually need to worry about our currency.  Inflation will take care of everything.  On November 18, 1970 gold was 227.00 per ounce, November 18, 2017 gold is 1291.00 per ounce.