No banks are safe

pmbug

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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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More: http://www.cnbc.com/id/101263206

Inspires confidence, doesn't it?
 

pmbug

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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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http://www.telegraph.co.uk/finance/...te-offs-as-Wests-debt-hits-200-year-high.html

Apparently the IMF is not a fan of Krugman.
 

rblong2us

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not so good that we can agree with the IMF though )-:

Why are they so different from Krugman ?
 

pmbug

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My comment above was off the mark. It's not the IMF. The IMF just published the paper, but it's not necessarily an editorial comment by them (they include a disclaimer in the .PDF to that effect). The paper is the work of Carmen Reinhart and Kenneth Rogoff - two guys most economists should recognize (of "This time is different" fame).
 

pmbug

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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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More: http://bambooinnovator.com/2014/01/08/hong-kong-banking-watchdog-seeks-bail-in-powers/
 

Unobtanium

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Time for my Ricky Ricardo impersonation:
Can someone es-splain to me why it is that banks need bailouts and bail ins?

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.

So WTF is it that they are doing so ineptly that requires bailouts? Or are bailouts just a lame excuse to extract even more money from the general public into their greedy coffers?
 

pmbug

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Well, a large portion of those "hard assets" are actually paper assets at another bank. When a bank goes "poof", so do all their "hard assets".
 

bushi

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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.
...
So WTF is it that they are doing so ineptly that requires bailouts?...
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.

Luckily, thanks to our friends in the Fed, who keep the rules the game, they changed that. Because banks would be STILL insolvent, if they marked all this insanely priced (originally) shit to its current market value , well, Benny & Co. Have allowed them to "Mark to model", which means in short, "Mark to unicorn", or "Mark to a fantasy", i.e., if the house was mortgaged for say 1mil, went under, and cannot possibly be sold for anything more than 250k, the bank is still allowed to keep it on the books as a 1 mil asset (clear nonsense and accounting fraud, but hey who cares)
Now of course banks are not in the business of keeping inventories full of decaying houses, so they can either a) sell the house, get the money they can for it, BOOK the fecking loss -or b) not sell it, stay "solvent" on paper, but then, how to make a living from making loans, if they have NO new money to borrow against?
Fortunately, there's Benny & Co. to the rescue again, with QEs and duck knows what other fraudulent machinations, to keep these mofos whole. So they stuff banks with cheap money from the Fed, to keep them afloat, even when the banks are starving for capital otherwise.

Sometimes I think I would be better off not knowing all that shit, it is infuriating.



Sent from my SM-N9005 using Tapatalk
 

DCFusor

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Sometimes I think I would be better off not knowing all that shit, it is infuriating.
Yup. It's fairly depressing how the worst scum control so much. I believe I posted recently on another thread that 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.
 

Unbeatable

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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.”
That & the new IMF paper you quoted as well PMBug show that the writing has to be on the wall. The bank bail-ins are coming.

Global consensus is hard to clear up for something this big and inter-connected, but the fact that a major financial centre like Hong Kong is saying listen we can't wait much longer says a lot.

I think paying close attention to Hong Kong and the decisions they make, should give us a clue as to when/how imminent the bail-ins are.
 

ancona

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I foresee a huge bail-inn coming our way, but I also see it backfiring on them. Outright theft of our money will have grave implications for these banks, as people will quickly realize they've been completely screwed over by the bankers and indeed, their own congress-critters. A bail-in will NOT go over well in the US at all. Buildings will burn and bankers will die, you can count on it.
 

rblong2us

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If its sold as a one-off charge to fix a broken system it would be hard to get too distressed, as the alternative is that their fiat money fails and a new money system must be created ............

Cant imagine what effect the realisation among the masses that a bail in is heading their way will have on ... err ... real money (-;

Sadly though 'the masses' generally dont have enough in a bank to worry and their gov will guarantee the first £$xxx k
 

pmbug

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... and their gov will guarantee the first £$xxx k
I'm not so sure that FDIC (or foreign equivalents) will be able to make good on their guarantees. Last I knew, (a few years ago when banks were failing every week) the FDIC was essentially insolvent. If the dominoes fall, they aren't going to be able to backstop all the banks at once. It's quite likely that the current threshold guarantee of $250K here in the States won't stand.
 

rblong2us

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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.

The test might be in the eurozone where ze germans are not yet fully on board with the programme. My instinct is that they will fall in line when the situation becomes dire for them.
 

pmbug

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... 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.
We're not quite there yet, but I found this interesting:
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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More: http://www.reuters.com/article/2014/01/12/us-basel-banks-idUSBREA0B0IX20140112

Sounds like the west is feeling confident in their banks if they are ready to accept higher capital requirements, right?

Not so fast...

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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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BigJim

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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 !!!
 

bushi

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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 ????
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".

Jeez, one would think that Communism has died in 1989 - but isn't it a "brilliant" way of "leveling the playing field"? :rotflmbo:
 

ancona

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If the banks here ever start hemorrhaging like they did in Cyprus it's game over. Capital controls only have a measurable effect if there is actually money left in the system to control. In addition, these controls leave the elite largely unaffected, primarily hammering those who can least afford to be denied access to their resources such as small business and the poor.
 

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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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http://www.scmp.com/news/asia/artic...-raid-dormant-bank-accounts-raise-new-revenue
 

pmbug

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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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http://www.rttnews.com/2255125/ecb-...-of-bank-resolution-mechanism.aspx?type=eueco

Must? Does he know something we don't? ...
 
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