Bank Bail-In Explained: The Banks’ Ultimate Wickedness
We live in a world where the financial landscape is set up to favour the already rich and wealthy. A world of Bailouts and Bail-in for the financially reckless and uncaring institutions at the expense of the middle class.
A brilliant yet intrinsically evil mechanism that consistently transfers wealth from the hands of the middle class income earners and hardworking taxpayers of the earth to the entitled tax exempted, ‘too big to fail’ individuals and institutions of the world.
The Bailouts of the 2008 financial crisis left many with a bitter taste in their mouths as a lot of people faced foreclosure, job loss and poverty while the already bloated Giant Corporations ate a good chunk of their taxes.
That should really be the worst case of inequity available out there…
It could get much worse. Imagine they just reach in and take your bank deposits right out of your checking accounts????
What is a Bank Bail-in?
According to The Economist, the magazine that coined the term “bail-in”, a bail-in occurs when the borrower’s creditors, including depositors and bondholders,are forced to bear some of the burden by having a portion of their debt written off to enable the failing Bank restructure their capital so it can remain in business.
The obvious risk to bank depositors is the possibility of losing a portion of their deposits. However, depositors have the protection of the Federal Deposit Insurance Corporation (FDIC) in the United States, insuring each bank account for up to $250,000. Banks are required to use only those deposits in excess of the $250,000 protection.
Hence persons holding more than $250,000 in their bank accounts are at risk of a bail- in which could occur by means of a resolution proceeding, which provides immediate relief to the bank.
In a Nutshell, rather than taking the money from taxes already paid and from which you likely won’t be exempted from paying, they also legally forcefully take the money directly from your Bank Deposits as a shortfall for risks and failures that are entirely their prerogative.
What Causes a Bank Bail-in ?
Bank Bail-in usually occurs during:
- A major Financial Crisis,Depression or Recession.
- When Banks Begin to Fail.
Can the Banks really Take Your Deposits?
The answer is a resounding: YES!
A lot of people believe that the money they deposit into the bank is an asset they own But that is not the case.
Once a deposit is made into any bank, it is no longer your property. It is the property of the Bank. What you are left with is a promise from the bank to repay. It’s an unsecured liability. Money deposited into the bank technically makes you a creditor of the bank.
You’re liable to get burned from a bail-in should the bank get into trouble.
One of the key outcomes of the G20 Summit held in Brisbane in 2014 was the agreement amongst those nations to implement International Settlements’ (BIS) Financial Stability Board bail-in provisions.
As a result new Bank Bail-In Laws have been implemented in the G-20 Countries as well as FSB Regulated Countries. Bank depositors in these countries are now legally treated as unsecured creditors.
How did Bank Bail-In occur in Cyprus and Austria?
Cyprus Bank Bail-In
Also known as the Cypriot Financial Crisis.
The terms of the Cypriot bail-in were as simple as they were startling. Cyprus will levy a “one-time” Tax on Bank Deposits to raise an additional $7.5 billion. This tax will take 6.75 percent from insured deposits of €100,000 ($129,000) or less, and 9.9 percent from uninsured amounts above €100,000.
Depositors would then get bank stock equal to whatever they lose from the tax.
The major reason for the Cypriot Bail-In was the fact that they had grown so big that when they eventually failed, the Cyprus government couldn’t afford to Bail them out, the bill to bail them out was equivalent to 50% of Cyprus GDP!.
Austria Bank Bail-In
Austria officially became the first European country to use a new law under the framework imposed by the 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.
Austria’s financial markets regulator FMA imposed a hefty haircut on creditors in an Austrian bank.
Creditors in the bank, Heta Asset Resolution received less than half of their money back according to the country’s financial regulator, the FMA.
Are Australian Banks considering a Bank Bail-in?
Very quietly, on 14 February 2018, with just 7 senators present, the Financial Sector Legislation Amendment (Crisis Resolution Powers And Other Measures) Bill 2017 was passed into law on a voice vote.
This piece of legislation brought Australia in line with the ‘Bail In’ agenda of the Bank of International Settlements (BIS) as agreed at the G20 in Brisbane in 2014. There was little to no press on the matter and yet the ramifications for all Australians are potentially huge.
Now in 2020, Australia’s Authorised Deposit-taking Institutions (ADIs) have been quietly taking action to prepare for a potential bail-in of retail bank deposits if a domestic or global financial crisis were to occur.
7 Places Where you can Keep Your Money If You don’t Trust the Banks Anymore
I could just say stuff all your cash under your mattress or dig a hole in your vegetable garden and stuff it all in there BUT the Finance world today has evolved way past that.
So here are 7 places you can keep your money if you don’t trust the banks:
- Real Estate
- Get a Private Vault
- Gold- other precious metals
- Federal Bonds
In addition to the above, explore multiple options to invest with very little money in 2020.
6 Ways to Protect Yourself from a Bank Bail-In
Most major world economies are quickly becoming cashless and most monetary transactions, especially if you are an International businessman or woman, require that you have a well furnished and functioning Bank Account.
The movies can also always be counted on to portray persons making major transaction payments with huge sums of cash as having a questionable source of income so… NO, don’t hide your money under your mattress.
Here are 5 Ways you can protect yourself from a Bank Bail-in:
- Even if you are banking or living in a safe haven at the moment. Start moving a substantial portion of your cash on hand to an offshore banking jurisdiction that is safer.
- Banks and Financial institutions should be chosen on the basis of the strength of the institution. Jurisdictions should be chosen on the basis of political and economic stability as well to prevent sudden bank bail-in actions. Avoid banks with large derivative books and large mortgage books, only the strongest banks should be used.
- Keeping your bank accounts under any government deposit insurance limit is essential. It is important to diversify your money across enough accounts so that it does not exceed those limits. Nevertheless, don’t rely on these limits or insurance, they have been known to fail.
- Always know that as a cash depositor in a bank you are simply an unsecured creditor of the bank. NEVER FEEL SAFE!
- Try to own money making assets outright.
- Store up cash or gold to avoid getting stranded during a bank run.
What am I yapping about..you say?
In December 1931, there was a wave of bank insolvency that claimed 680 U.S. banks in just 2 months. It was the Great Depression.
The assets of these Banks were liquidated into one of the worst markets of the 20th century. It was, in other words, the worst imaginable situation to be a creditor to an insolvent bank.
On Tuesday 14th April, 2020 the International Monetary Fund [IMF] warned of a coming Great Depression that would be worse than that of 1929 or any other depression in History.
Writing this piece hurt real bad, because with an impending 2020 Great Depression approaching that will eclipse the 2008 financial crisis, Bank Bailouts and Bail-ins could be a reality in the near future.
As many unsecured creditors, and even average Joe’s bank deposits, possibly get frozen and eventually get transferred to secured creditors. Ordinary people’s unsecured savings in a bank account could be lost, and or diluted.
There is going to be a lot of Blood and tears on the street in the coming Economic Crisis…get prepared!
Investopedia:Why Bank Bail-Ins Will Be the New Bailouts
The Balance: What Is a Bail-In and How Does It Work?
SDBullion: Legalised Bank Bail-Ins
NomadCapitalist: How to Protect Yourself from a Bank Bail-In ( In Greece, Cyprus, or Anywhere)
The Atlantic: Everything You Need to Know About the Cyprus Bank Disaster
Mondialisation.ca:Austria: A 54% « Haircut » Of Senior Creditors In First « Bail In » Under New EU Rules
AinslieBullion.com.au:SENATE PASSES ‘BAIL IN’ LAW – HOW SAFE IS YOUR CASH NOW?