http://www.reuters.com/article/2013/06/27/us-eu-banks-idUSBRE95Q02L20130627 Europe strikes deal to push cost of bank failure on investors Unbelievable. All of the EU? 2018? Bail-ins as policy. Talk about capital flight. Continental socialism?
http://www.bankofengland.co.uk/publications/Documents/news/2012/nr156.pdf This FDIC boe document shows that it is US policy as well to do bail ins.
Yeah, unbelievable! How dare they impose losses on the people who actually took risk and invested in these banks! Outrageous! Having the taxpayer pay for the bank bailouts is the true capitalist way! Just like they did in Ireland with AIB (see here: http://www.scmp.com/business/banking-finance/article/1270077/irish-central-bank-probes-tapes). That's how things should really be done, in true capitalist fashion!
Agreed investors should take the hit not the tax payers or depositers. not depositors. In my title it just says investors (my mistake). But reading the fine print it also mentions depositors over 100K. How can depositors be asked to fund banks risk? The depositors will just flee. The next step would be to institute capital controls to limit the movement out of sovereign borders. I am not a gold or silver bug but where is a saver supposed to park their cash. This is a backward movement not forward. I do see they say LARGE depositors. Maybe I can help them out. How about they limit the number of banks to 2 or 3 institutions then everyone who is a depositor can share the burden of bank failures equally?
There's not a country in the whole wide world where ALL depositors, regardless of the amounts, are fully protected by an (ultimately) taxpayer-funded deposit guarantee scheme. A depositor whose deposit in a given bank exceeds the guaranteed threshold is just a senior creditor and there's nothing wrong with haircutting them. The government should not be in the business of backstopping the whole country's savings. There should be some amounts that are guaranteed to prevent runs and the like, but this guarantee should never be a blanket one. Where is a saver supposed to park their cash? Park it anywhere you like (gold, munis, houses, whatevers), but be aware that you could lose it. People having an understanding that ANY investment, including a deposit in a bank, implies TAKING RISK is a GOOD thing. I don't get your point about limiting the number of banks.
Socialism would be making taxpayers fund the costs of bank failure. Putting the cost of failure onto people who freely place funds with the business, in hope of a profit, would be capitalist. Without any risk of loss of deposits, there is no incentive to be careful where funds are deposited. This would allow reckless banks to accumulate deposits by taking more risk, yield hogging, and offering higher interest rates (as happened with deposits into Iceland banks at several hundred basis points above LIBOR). As with any attempt to eliminate risk, the perverse result is that risk *increases* because people stop being careful due to the alleged 'guarantee'. Careful banks would lose funds because people would see no incentive to place deposits with careful banks - as the government is backstopping the riskier banks. Were you actually alive in 2008?
I agree with most of what you say. It has to do with the seniority of the debt instrument I suppose. Checking and savings deposits need to be protected as much as possible otherwise all trust in the financial system will collapse. It is a faith based system. If banks are no longer trusted the entire world's economy will be destabilized. Rule of law is most important in the smooth functioning of markets. I suppose at least a clear system will help that aspect of things but the rules need to be CLEAR and not arbitrary therefore prudent individuals can conduct their affairs in a a manner which minimizes their risk. People do not deposit their savings in a bank for risk. It is a risk off move. I understand your level of sophistication and yes for high net worth individuals they will be able to sufficiently hedge the risk but mom and pop? I am not so sure. Tongue and cheek with regard to number of banks. If there are only one or two banks and they are subject to bail-ins for depositors then "everybody" gets nailed. Anyways food for thought and thanks for your insightful comments.
It is not a faith based system - it is a market, not a religion. Caveat emptor and all that. No one with more than two brain cells to rub together has faith in a bank - they should be assessing the creditworthiness, the management integrity and quality, the culture of risk management, and only investing in those institutions which have an impeccable record and credentials in all of those aspects. Accepting that banks have risk (which is a fact, banks are not risk free investments) is just a recognition of reality. Assuming they are risk free is just idiotic. Remember, if you want the ultimate low-risk investment, you can always own t-bills.
I feel better now. I love a good bitch slap with icy cold water poured on the head. I take it cutten is a 20th century phenom?