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EU set for more Cyprus-style bail-ins for troubled banks
European finance ministers have reached the basis of an agreement to wind down failing banks and share the costs, Eurogroup President Jeroen Dijsselbloem told CNBC following a 16-hour marathon negotiating session in Brussels.
The agreement is expected to begin with a Cyprus-style "bail-in" process in which major depositors in failing banks are tapped first in an effort to support the lender.
Then, if more cash is needed, national resolution funds would be used. And if further funds are needed, these would be pooled from across the region over the next five to 10 years, forming the basis of a common fund.
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Ambrose Evans-Pritchard said:Much of the Western world will require defaults, a savings tax and higher inflation to clear the way for recovery as debt levels reach a 200-year high, according to a new report by the International Monetary Fund.
The IMF working paper said debt burdens in developed nations have become extreme by any historical measure and will require a wave of haircuts, either negotiated 1930s-style write-offs or the standard mix of measures used by the IMF in its “toolkit” for emerging market blow-ups.
“The size of the problem suggests that restructurings will be needed, for example, in the periphery of Europe, far beyond anything discussed in public to this point,” said the paper, by Harvard professors Carmen Reinhart and Kenneth Rogoff.
The paper said policy elites in the West are still clinging to the illusion that rich countries are different from poorer regions and can therefore chip away at their debts with a blend of austerity cuts, growth, and tinkering (“forbearance”).
The presumption is that advanced economies “do not resort to such gimmicks” such as debt restructuring and repression, which would “give up hard-earned credibility” and throw the economy into a “vicious circle”.
But the paper says this mantra borders on “collective amnesia” of European and US history, and is built on “overly optimistic” assumptions that risk doing far more damage to credibility in the end. It is causing the crisis to drag on, blocking a lasting solution. “This denial has led to policies that in some cases risk exacerbating the final costs,” it said.
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Hong Kong’s banking regulator has demanded far-reaching powers to prop up or shut down failing banks, such as the ability to suspend normal creditor rights, as it plays catch-up with western regulators trying prevent a future Lehman Brothers.The Hong Kong Monetary Authority made the calls in the first public consultation from an Asian regulator on a so-called resolution and recovery regime, which is meant to make financial institutions easier to break up and sell off in a crisis.
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The regulator signalled that it would push for legislation allowing it to “bail in” bank bondholders and lenders, by enforcing writedowns on the value of bank debt or converting it to equity.
“The consultation paper is clear that bail-in and other powers will be needed and that these will be sought in new legislation next year,” said Royce Miller, a partner at Freshfields in Hong Kong.
“Even though Hong Kong regulators are waiting for greater global consensus on bail-in and some other issues, it is clear that they won’t wait much longer and that they are aiming to make decisions on these issues during 2014.”
Bail-in powers over senior bonds have proved controversial elsewhere, with investors and analysts in other markets saying they could increase the costs to banks and affect their access to senior funding. The UK, US and Switzerland have all indicated they will use bail-in powers.
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Those who live by the balance sheet, die by the balance sheet. Yes they can create moneys out of nothing, but they have to book it all according to the rules (lax as they are, and as unenforced by the regulators as they are, but still). So let's say (not so) hypothetical scenario: the bank is leveraged to the hilt, cannot possibly create any single dime more, without posting some more of the (fractional reserve) backing. Has all these mortgages, given for 110% of value of the house, that has been 50% overpriced in the first place. Suppose now the mortgage owner goes under, house gets repossessed. But the bank cannot post "a house"on its balance sheet, in place of the former, now liquidated mortgage. So they can do two things: normally, sell the house into the market for its current going price, and book huge losses (remember, they can perhaps recover 60% of the original mortgage they have booked for the original borrower- which is a big, red ink bleeding hole in their balance sheet now, rather than income producing, nice and steady monthly repayments). Or two, "Mark to market" the current value of the house on the open market, as their asset, and keep it. Problem is the same, if they mark it to market, they have to book it as it's current market value, which blows holes the size of a school bus their balance sheets.Banks have the power to create money from nothing when they write a loan, and also to repossess the hard assets if the loanee defaults. It is a win-win situation for banks.
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So WTF is it that they are doing so ineptly that requires bailouts?...
Sometimes I think I would be better off not knowing all that shit, it is infuriating.
Even though Hong Kong regulators are waiting for greater global consensus on bail-in and some other issues, it is clear that they won’t wait much longer and that they are aiming to make decisions on these issues during 2014.”
... and their gov will guarantee the first £$xxx k
... the big indicator that things are actually almost OK again will be some big bank asking for that FASB ruling to go back to "mark to market". The first bank that actually has a decent balance sheet will perceive it to be a competitive advantage, and will (and has the money) to make a lotta noise there.
Instead, crickets.
Global banking regulators agreed on Sunday to ease the way a new rule, meant to rein in risky balance sheets from 2018, is compiled to try to avoid crimping financing for the world's economy.
Sunday's decisions were the latest sign of how regulators have become more willing to accommodate banks as the focus switches to helping economies recover.
The relief to lenders may, however, be temporary as the regulators signaled there is still no agreement on the final level of the new leverage ratio, which measures how much capital a bank must hold against its loans and other assets.
The ratio was initially set at 3 percent of capital but supervisors from the United States, Britain and elsewhere are pushing for a higher proportion, a person familiar with the debate said.
The ratio acts as a backstop to a lender's core risk-weighted capital requirements. A ratio of 3 percent means a bank must hold capital equivalent to 3 percent of its total assets.
The rule is part of the Basel III accord endorsed by world leaders in response to the 2007-09 financial crisis that left taxpayers rescuing undercapitalized lenders.
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As first reported by Reuters last month, when banks tot up their assets, they can now include derivatives on a net rather than the much bigger gross basis so they don't have an incentive to ditch some types of assets, such as loans to companies, to avoid hitting the ratio's ceiling.
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Think the FDIC has been insolvent for a while now but its not likely the feds would allow it to fail. As long as they can print they can guarantee bank deposits.
I agree. The FDIC can guarantee deposits but on what time frame ?
$100,000.00 in an account, FDIC pays back $500.00 a month ????
CONTROL !!!
yep, Cyprus all over again. "you have your money in the bank, no worries, it is only that you are allowed to withdraw 300 a week max, and your credit card won't work abroad, and this & that & the other".I agree. The FDIC can guarantee deposits but on what time frame ?
$100,000.00 in an account, FDIC pays back $500.00 a month ????
Infamously saddled with a public debt that is running at an eye-watering 214 per cent of GDP, the Japanese government is planning to raid dormant private bank accounts to boost its bottom line.
The ruling Liberal Democratic Party and its main ally in government, New Komeito, are planning to submit a bill to allow the government to access bank accounts that have not been touched for 10 years or more. The funds would be used for welfare and education projects.
Accounts holding some 85 billion yen (HK$6.3 billion) are classified as dormant each year, with depositors who are notified of the situation reclaiming about 35 billion yen.The new legislation would therefore free up about 50 billion yen each year.
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European Central Bank Executive Board member Benoit Coeure said on Wednesday that the proposed mechanism to deal with bank failures must be implemented earlier than planned.
In a speech delivered in Brussels, Coeure said the Single Resolution Mechanism (SRM) should allow for lean decision-making during emergencies. He also sought "robust and common" resolution financing arrangements.
"In this regard, the period of ten years for moving towards a genuinely common Single Resolution Fund (SRF) is too long and should be shortened, possibly to five years," Coeure said.
"Also, adequate common backstop arrangements need to be established, both for the transition period and the steady state, to guarantee the credibility of the SRF and avoid a persistent or re-emergent sovereign-bank nexus."
He also said that it should be solely the supervisor's job to decide whether a bank is failing or likely to fail.
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Bank-Run Fears Continue; HSBC Restricts Large Cash Withdrawals
HSBC is imposing restrictions on large cash withdrawals raising a number of red flags. The BBC reports that some HSBC customers have been prevented from withdrawing large amounts of cash because they could not provide evidence of why they wanted it. HSBC admitted it has not informed customers of the change in policy, which was implemented in November
This has been a general approach in the UK for several years.
Banks are obliged to notify HMRC of cash transactions above about £2k ( I dont know the exact amount ) and a reason for the transaction. This includes cash payments into your bank.
You could always write cheques for whatever your balance will cover and they will happily do bankers draft thingies if you are buying a vehicle or something that requires certainty of payment at the moment of transaction.
Banks here do not generally carry large amounts of cash in anticapion of big number withdrawals so they require notice (and reason ) if cash is required.
I dont think this means there is a shortage of cash but it certainly does not encourage its use for larger transactions.
Its rather typical of ZH to use this kind of information in an attempt to promote concern in an unrelated situation .....
HSBC imposes restrictions on large cash withdrawals
Money Box asked other banks what their policy is on large cash withdrawals. They all said they reserved the right to ask questions about large cash withdrawals. But none of them said they would require evidence of what the money was being used for before paying out.
I thoroughly enjoyed listening to this weeks 'Book of ther Week' - all about Gold
and written by someone who seems to 'get it '. In last nights episode he talked about the gold shifting east and closed with the thought that gold can be relied on when paper fails.
http://www.bbc.co.uk/programmes/b006qftk/episodes/player
I tried your link, but I can't find any way to listen to it, although from the hype on the page it seems like something worth listening to.
Sky reports that customers of Lloyds and TSB, as well as those with Halifax, have reported difficulties paying for goods in shops and getting money out of ATMs.
All three banks are under the Lloyds Banking Group which said: "We are aware that some customers are unable to use their debit cards either to make purchases or to withdraw money from ATMs. "We are working hard to resolve this as swiftly as possible and apologise for any inconvenience caused."
Helen Needham said: "#lloyds bank having problems with there card service... Can't pay for anything or get money out!"
Another Twitter user wrote: "This problem is also affecting Halifax debit cards as I found out trying to pay for lunch with my wife!"
And Jane Lucy Jones tweeted Halifax, saying: "Why can't I get any money out of any cashpoints, what is going on?
China halts bank cash transfers
In short, there will be a three-day suspension of domestic renminbi transfers. There will also be a suspension, spanning nine calendar days, of conversions of renminbi to foreign currency.
The specific reason given—“system maintenance” at the central bank—is preposterous. It is not credible that during the highest usage period in the year—the weeklong Lunar New Year holiday beginning January 31—the central bank would schedule an upgrade and shut down cash transfers
Banks are evidently scrambling for cash. They have, in the past, resorted to desperate maneuvers at the ends of calendar quarters to meet regulatory requirements. The current crunch is even more alarming because it cannot be occurring for quarter-end reasons.
Something is very wrong in China at the moment. Banks’ apparent need to conserve cash, coming just weeks after the last incident, looks ominous.
hey mmerlin, Im not much use when it comes to computer button poking :flail:
all I can say is that it works for me ............
Perhaps the individual links to the 5 episodes will work better -
Earlier this week 30-day/4-wk T-Bills were auctioned off a 0% rate. Intra-day, after the auction, the rate went negative. Negative short term rates were last observed in 2008, before the Lehman/AIG/Goldman collapse occurred. Of course, Lehman was allowed to implode and Goldman, who's ex-CEO was the Treasury Secretary, was bailed out. AIG was the beneficiary of that bailout because Goldman had impaled itself on AIG nuclear waste.
The point here is that negative T-bill rates only occur when very big investors are concerned about the return OF their money and not the return on their money. Think about what a negative T-bill rate means. It means that someone is paying more for the T-bill than they get in return when it matures a few weeks later. Why would someone do that? It's the "safest" place to park large sums of cash.
A big institutional fund or very wealthy investor pays for a T-bill because they they see something which indicates that the risk of the Government defaulting in the next four weeks is less than the risk of parking that money in a bank or a money market fund. We're talking millions and tens of millions in short term money. Bank deposits are insured only up to a small amount. After 2008, it has been decided that money market funds will no longer be bailed out by the Government/Fed.
In other words, big big investors with cash that needs to be parked are seeing something that gives them concern about the financial system. The negative rates on T-bills means that whatever was spooking big money in 2008 is spooking it again. My best guess right now is that there is massive risk of derivatives default. This would be the derivatives that blew up the system in 2008 but that the Fed/Government quickly monetized. The problem was never fixed, contrary to Obama's recent end zone dance on the safety of the banking system.
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These credit/currency related crises that we have experienced since 2008 all have produced the same thing after the market begins to sift through the details - a DEFLATIONARY reaction.
By that I mean a rush into the relative safety of US Treasuries out of equities. The result is a drop in interest rates as investors seek return OF capital and not necessarily return ON capital.
In the process, the Japanese Yen has tended to be the recipient of inflows. I am still unclear as to why anyone would regard the Yen as a safe haven currency but I suspect it might have more to do with Yen carry trades being unwound which puts upward pressure on the funding currency as those trades are reversed.
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... This late session recovery in the US Dollar and further downward movement in equities is actually bringing deflation fears back to traders' minds and as those fears strengthen ( at least for this immediate moment) gold is fading lower along with silver and copper and the other metals.
Via Bloomberg,
Lender has introduced complete ban on cash withdrawals until end of week, news agency reports, citing unidentified person in call center.
Bank spokeswoman declined to comment by phone
My Bank is top 200 lender by assets: Prime
If there was going to be a mass bail-in/wealth tax that needed to be orchestrated on a global scale, where would those decisions be finalised?
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