New EU Bail-In Agreement Yesterday: What Bail-Ins Would Look Like (Part VII)!

• New EU Bail-In Agreement Yesterday – What Bail-Ins Would Look Like (Part VII)! 
  by Mark O’Byrne, https://www.goldcore.com/ 
  … The EU agreed new rules yesterday for bank bailouts or “bail-ins.” The new system will take effect from 2016 but emergency resolutions can be brought forward in the event of banks failing in the interim period. The “bail-in” will require that shareholders, bondholders and importantly now depositors will all suffer ‘haircuts’ or be burnt if a financial institution is in trouble.
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  The European parliament confirmed in a statement overnight that depositors with more than 100,000 euros ($137,000) would be bailed in after shareholders and bondholders. It is important to note that the 100,000 figure is an arbitrary figure and there is a possibility that this figure could be reduced by an insolvent government faced with an imploding banking system.
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  The deal does not exclude the possibility of public money being used “in exceptional circumstances,” the parliamentary statement said. The agreement was spun as a victory for taxpayers, however the risks and ramifications of bailing in savers including families with their life savings and the deposits of already struggling small and medium size enterprises has yet to be appreciated.
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  Gunnar Hoekmark, who steered the legislation through the European parliament, said: “We now have a strong bail-in system which sends a clear message that bank shareholders and creditors will be the ones to bear the losses on rainy days, not taxpayers.”
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  Gunnar forgets that savers are taxpayers too and have paid taxes – on their income, on goods and services, on capital gains etc – on their hard earned savings already. Indeed, many are already paying punitive deposit interest rate taxes also.
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  There also appears to be a failure to realise that deposits – including family’s life savings, retirees pension incomes and businesses – are a vital part of the economy. You cannot have consumption without saving. You cannot have business growth and expansion and a consequent growth in much needed employment without capital.
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  Many countries now accept the principle that if banks get into difficulty, then it will not be the taxpayer but investors and creditors including already hard pressed savers that will suffer losses.
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  However, the situation regarding some countries – notably the BRICs is less clear. The imposition of bail-ins in western countries and not in BRIC and other nations would likely lead to capital flowing to the non bail-in countries.
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  Therefore, rather than solving the banking and debt crisis, bail-ins could ultimately compound the problem by further undermining the public’s confidence in our banks and the banking system.
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  What Bail-Ins Would Look Like
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  read more!

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