Posted on 04/10/2016 10:43:07 AM PDT by Former Proud Canadian
--snip--
This was the first official proposed "Bail-In" of creditors, one that took place before similar ad hoc balance sheet restructuring would take place in Greece and Portugal in the coming months. Or rather, it wasn't a fully executed "Bail-In" for the reason that creditors fought it tooth and nail.
And then today, following a decision by the Austrian Banking Regulator, the Finanzmarktaufsicht or Financial Market Authority, Austria officially became the first European country to use a new law under the framework imposed by Bank the European Recovery and Resolution Directive to share losses of a failed bank with senior creditors as it slashed the value of debt owed by Heta Asset Resolution AG.
(Excerpt) Read more at zerohedge.com ...
The irony is that one of the supposed causes of the Great Depression was the failure of another Austrian bank, Creditanstalt. European banks as a whole are in a heap of trouble. When interest rates dive to ZIRP and NIRP, so do their profits and their share prices. Germany's biggest bank, Deutsche Bank, is in terrible shape.
If anyone believes I will obey a single law, they can suck it.
When a business goes belly up, the investors lose money.
This doesn’t seem to have anything to do with individual depositors.
I believe they have failed to look at the unintended consequences. That banks have creditors implies that lots of organizations give banks credit via bonds. When those bonds are likely to be worthless, by government administrative action at any moment, how likely is it that other creditors will continue to loan to banks? That capital will flow to safer havens. The US stock market has been the recipient of other world-wide cash surpluses because it appears much safer. This was one cause of the 90’s bubble when most of the world’s cash was invested in the US, driving the bubble ever larger. (The end result in Europe will be more bank defaults and the eventual collapse of most European banks.)
The European banking system is under incredible stress. It is showing up in their share prices. The last to know are the depositors who cannot get their money back. By then, it is too late.
This crisis is unfolding slowly, at first, then it will happen all at once.
As I read it, the worthlessness of the bonds was not due to government administrative action. It was due to poor management of the capital by the bank. The refusal of the government to underwrite irresponsible actions by the banks will have just the consequence you describe; that is, the banks will have to take steps to assure bond purchasers that the money will not be lost. I see that as a very good thing.
General, your words are not just blather.
Creditanstalt had to declare bankruptcy on 11 May 1931. This was one of the first major bank failures that initiated the Great Depression.[2]:2–3 [3][4] Chancellor Otto Ender rescued Creditanstalt by distributing the enormous share of costs between the Republic, the National Bank of Austria and the Rothschild family. Nationalization plans advanced by the Social Democrats were rejected. However, the institute was de facto state-owned after Chancellor Engelbert Dollfuß in 1934 ordered the merger of the institute with the Wiener Bankverein, thus changing its name to Creditanstalt-Bankverein. The Creditanstalt bankruptcy and its impact in producing a major global banking crisis provided a major propaganda opportunity for Adolf Hitler and the Nazi Party: it allowed them to further blame Jews for German and international economic and social troubles [1].
As the man said.....it’s deja vu all over agian
At least we got 'The Sound of Music' out of that failure. Although it took about 30 years to get to the movie.
This doesn’t seem to have anything to do with individual depositors.
Not yet, but it does involve "creditors." According to American law, when you deposit money in a bank, the money is no longer yours. It is an unsecured loan to the bank. In other words, you are an unsecured creditor of the bank. So if a bank goes bankrupt, creditors will be paid out according to the laws for bankruptcy, and unsecured depositors are at the back of the line for payouts. Depositors who are not covered by federal insurance can lose everything they deposited. Depositors who are covered can still have their deposits locked up for years before thay have access to it.
Anyone who keeps a lot of money in banks nowadays is nuts.
During bank failure, creditors will have first priority for any funds which may be available for pay out. Since bank depositors money is now considered to be ‘unsecured debt’, the deposits will essentially be converted to bank equity – which means that the depositors will become last to be paid out. And there probably will not be any money left to be paid out.
Even though the FDIC isn’t there to support a derivatives failure, the FDIC insurance does not and will not (ever) have even a tiny portion of the $300 trillion among the banking losses of a derivatives crisis. And if you think that all it will take is for the government to print the money (enough to save the banks) – all that will be left (after currency devaluation due to massive printing) will be a small fraction of what your dollar was once worth.
“Anyone who keeps a lot of money in banks nowadays is nuts.”
I believe this is why the push is starting to eliminate our right to have and use cash. We are being trapped into this failed system.
“Some creditors will suffer a 100% haircut, ...”
AKA “scalped”.
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