Banking Bail-Ins: Destroy the Depositors
Thursday, 4/17/2014 17:33
Bail-ins are a very good thing. Burn the shareholders, and destroy the deposit savers...
SO the MONEY LENDERS didn't
get thrown out of the temple again this Easter Week,
writes Adrian Ash at BullionVault...
The Queen of England once more
touched a few bag of silver coins...handing useless Maundy money to a small selection of her more aged subjects in an old ceremony...
And another, less ancient tradition was upheld by the European Parliament too.
Strasbourg's finest voted to confirm the €100,000 level of banking deposit insurance across the 18-nation Euro currency zone. But only that €100,000 limit. Above that, you're on your own.
So why the fuss at at cut-and-paste schlock-horror news site ZeroHedge...?
"Bail-Ins Approved by EU Parliament," says a headline. "Deposits Over €100,000 Vulnerable. Coming Next in UK, US and Globally."
Judging by some readers' comments, you'd think this was an evil plot by government to steal bank savers' money. Yet in truth, all bank accounts carry credit risk. Government meddling actually comes with the "deposit insurance" which the EU just confirmed.
The name gives it away. A bail-in is different from a bail-out. As the article says, it means that...instead of taxpayer money being used to rescue failed banks like in 2008..."the bank's owners and creditors will be first in line to absorb losses banks will incur, before outside sources of finance may be called upon."
Good. Excellent in fact. If a bank fails, burn the shareholders. Then destroy the creditors. It happens in every other field of business. It should happen to banks, too.
For too long, senior bank executives have relied on the promise of taxpayer rescue. So have bank creditors. Meaning you, me and everyone else with cash on deposit. It has made us lazy, and blind to risk.
When you put money into the bank, you are lending it. You don't own it anymore. So you are exposed to the bank failing. Or you should be. Yet if you hold up to €100,000 in a Eurozone bank, that money is guaranteed by government. US insurance is $250,000 and in the UK £85,000. Anything above that limit is not guaranteed. This is what the latest votes in Strasbourg confirm, as part of the
much scarier "banking union" moves.
Forget the phrase "bail in". It's a new buzzword, and a silly one at that, to suggest banking failure might hurt people who aren't involved. Boo-hoo. Creditors are very involved. Money in the bank is exposed to the bank.
Fact is, you can either have price risk or credit risk. Yes, you can get one on top of the other (such as
nominee brokerage accounts, structured investment products). But you can never escape them both. Make your choice, and know your risks.
Physical bullion, owned outright, carries no credit risk. This is
why Bullionvault was set up. That's why you don't need or get "depositor insurance" on your gold or silver. Because you are an owner, not a depositor. So yes, you do get price risk alone when you own bullion. But we are not a bank (nor wish to be). So we must use the banking system to receive and return the cash you use to buy.
That money is on risk for the bank's solvency. The gold or silver you own isn't exposed to anyone. So if in doubt, buy bullion. Or withdraw excess funds back to your own bank account. Which you will of course have selected after thoroughly studying its risks.
Please also be sure to read this Help Page about
how Bullionvault cares for unspent client money. Because the risks you take with your money are yours to know and understand. Relying on government to protect you...come what may...is precisely what caused the banking bubble and crash.
It is also what will destroy very many savers and investors in the next crash, too. Because governments are now formally, and rightly, telling creditors they are on risk.
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