EU Regulators Order 11 Countries To Adopt Bail-In Rules

If there is a risk in a bank, our first question should be:  “Ok, what are you the bank going to do about that? What can you do to recapitalise yourself?”  If the bank can’t do it, then we’ll talk to the shareholders and the bondholders. We’ll ask them to contribute in recapitalising the bank.  And if necessary the uninsured deposit holders:  “What can you do in order to save your own banks?” – Jeroen Dijsselbloem, President of the Board of Directors of the European Stability Mechanism,  March 26, 2013

The bail-ins are coming.  Reuters reported today that European Commission today gave France, Italy and nine other EU countries two months to adopt bank bail-in regulations or face legal action – LINK

The move to require bank bail-ins originated at the BIS – Bank for International Settlements beginning in 2008.   In 2011, the Financial Stability Board (FSB) – a sub-committee of the BIS – drafted the boilerplate model for big bank bail-ins:  Key Attributes of Effective Resolution Regimes for Financial Institutions.

The objective of an effective resolution regime is to make feasible the resolution of financial institutions without severe systemic disruption and without exposing taxpayers to loss, while protecting vital economic functions through mechanisms which make it possible for shareholders and unsecured and uninsured creditors to absorb losses in a manner that respects the hierarchy of claims in liquidation.

The bank rescue model as drafted lays out a complete systematic procedure for the rescuing and restructuring of any financial institution considered “SIFI” – a Systematically Important Financial Institution.  In layman terms this translates into “Too Big To Fail.” This model was endorsed by the G20 at Summit in 2011.

The “model” requires that funds required for a bail-in to prevent a TBTF from collapsing would first be taken from unsecured creditors.  This is primarily any depositor money in excess of the amount insured by the Government.  Incredibly, and this has been ratified by legislation in the United States, holders of derivative securities of the collapsing bank are considered super-secured.  In other words, those stakeholders in the banks would be the last to suffer any losses resulting from the restructuring of an insolvent bank.

In the United States there is over $4 trillion in depositor cash in excess of the amount covered by the FDIC sitting in banks.

Make no mistake about this, bail-in legislation is coming to the U.S.  In fact, a $1.1 trillion spending Bill passed by Congress and signed by Obama on December 16, 2014 contained specific provisions drafted (and paid for) by Citibank which ensured that big bank OTC derivatives holdings will be covered by the FDIC (i.e. taxpayer).  This is a back-door way of making the next taxpayer bailout of the big banks a legal requirement.

Anyone who keeps any cash in a bank is either completely ignorant of the ways in which that money can be “confiscated” or just completely brain-dead.  I suppose there could be a strong element of denial involved as well.  Big bank balance sheets are in far worse shape than they were in 2008, especially once you peel away all of the accounting shenanigans and include the off-balance-sheet ticking bombs.   It’s not a question of “IF” – It’s a question of “WHEN.”

We can ignore reality, but we cannot ignore consequences of ignoring reality.  – Ayn Rand

19 thoughts on “EU Regulators Order 11 Countries To Adopt Bail-In Rules

  1. OK, OTC derivatives holdings will be covered by the FDIC (i.e. taxpayer), but isn’t the FDIC’s coverage limited?

    According to the website (as of March 2013), “FDIC deposit insurance is backed by the full faith and credit of the United States government. This means that the resources of the United States government stand behind FDIC-insured depositors.”[43] The statutory basis for this claim is less than clear. Congress, in 1987, passed a non-binding “Sense of Congress” to that effect,[44] but there appear to be no laws strictly binding the government to make good on any insurance liabilities unmet by the FDIC.


    Therefore in case of a calamity the FDIC insurance may cover say 1% of the savings.

    1. The FDIC will be used to bail out the banks. The Govt will print money and fund it. If you think there will any different outcome, then you are tragically naive.

      1. admin,

        You are very likely correct. The government will likely print money to bail-out the banks. The government is not going to take insured depositors money as some are warning. That would be the last thing a government would want to do. Uninsured depositors will loss at least some, and in some cases may be all, but the government will print before it starts taking insured deposits. I am more worried about future hyper-inflation and a devalued dollar than I am about the government confiscating my insured bank deposits that are in a good local community bank that has no derivatives.

    2. Was the 1987 ruling based on the S & L debacle at the time? I am old enough to recall clearly how much of a mess that was.
      Dave – Remember Neal Bush (yep that family) that was the head of Silverado Savings at the time? It is all like a bad flashback!!

      1. Yep. I drive by Neil’s old house in Denver all the time. What’s happening now makes the Silverado debacle look like nothing more than a shady kids’ lemonade stand.

    3. hr4711,

      You are correct. FDIC insurance does not cover derivatives. Only deposit accounts such as checking, savings, CDs etc… are covered up to the insured amount. Also some people have been saying that derivative claims get paid before insured depositors when a bank becomes insolvent. This is not true. When an insured depository institution fails, the FDIC is ordinarily appointed receiver. In every case the insured depositors got paid first, almost right away. Derivative creditors had to file a claim just like other creditors did and go through the bankruptcy proceedings.

    4. Bank accounts in the States are insured for $250,000. For many countries in Europe the limit is 100,000€. In the UK it is £80,000.
      In Cyprus, banks accounts in excess of 100,000€ were all skimmed off from 40 to 100% of the excess. Thus the expression ” We just got Cyprused”. This resulted in a net gain for big finance of 10 billion euros.
      To take the example of France, where I live, the amount set aside for bank failure is 2.1 trillion euros. In the case of a nationwide (worldwide) systemic banking crisis, this means that the first 21 thousand savers would be covered and the 69 million remaining bank customers would be staring at locked doors à la 1929 crack or Argentina circa 2002. This won’t happen of course, but it gives an idea of the small size of the safety net.
      The best bet is to split your saving into several accounts in banks that allow you to withdraw amounts daily. Local savings and loans would be better than big national banks, that are more exposed to derivative manipulation.
      Also a September surprise seems to be gaining momentum, so it would be wise to plan accordingly.
      Here’s a link that goes into it partially. Google for more info.
      Why Is The EU Forcing European Nations To Adopt ‘Bail-In’ Legislation By The End Of The Summer?

  2. So, we have the FDIC with $36 BN and a $500 BN LOC at the Treasury backstopping over $9 Trillion in deposits and $300 + Trillion (4 Largest US Money Center Banks) in OTC Notional…..hmmmmm. Wonder how that’s going work out.

  3. We are getting close to the time this make believe, pretend
    economy implodes and the shit hits the fan like never before.
    The powers that be know and understand what is coming
    and are prepared for the worst while the little people
    haven’t a clue and are totally unprepared. When this thing
    blows their rage and anger will be unbelievable and

  4. So we can now quantify the ignorant and brain-dead people in the USSA at 4 Trillion dollars, and herein lies the biggest problem. This loss will be a total blindside of about 97% of the population which will result in total, utter chaos.!!!

      1. Yes, They are getting ready – Problem – Reaction – Solution

        The Jade Helm – Walmart – ISIS – 3 Prong Attack – Invasion Plan

  5. 99% of the Sheeple will get hosed. These brain-dead pussies will not even be able to throw rotting fruit at the US Govt. They will end up homeless, commit suicide or end up in a newly remodeled plant manufacturing cheap US shit for the Chinese for a dollar and hour. Then only, will our exports soar!

  6. And so it starts. On the local news at noon there was a segment
    on how money is filthy and can make you physically sick. They
    talked about e-collie and had slides and Petri dishes covered
    with bacteria in full bloom. The message was plain. Money
    is dirty and for the sake of the children should not be used.
    I expect we will see much more of this in the near future
    before cash is outlawed but it’s for our own good
    don’t you know. Of course this will only be done because
    government is so very concerned about our welfare.

    1. I don’t think credit unions would be treated any differently. Credit unions are particularly vulnerable to collapse because they’ve been funding a lot of the subprime auto loans and they are heavy into local commercial real estate lending.

  7. What I think will happen….

    Forget about all the above, what they will do is say….

    Don’t panic, your money is 100% safe and will be paid back to you when the recovery takes place….

    You should live so long!!!.

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