If you thought the bank bail-outs were bad, just wait until you see what the bail-ins are like:
The European Commission has ordered 11 EU countries to enact the Bank Recovery and Resolution Directive (BRRD) within two months or be hauled before the EU Court of Justice, according to a report from Reuters on Friday.
The news was not covered in other media despite the important risks and ramifications for depositors and savers throughout the EU and indeed internationally.
The article “EU regulators tell 11 countries to adopt bank bail-in rules” reported how 11 countries are under pressure from the EC and had yet “to fall in line”. The countries were Bulgaria, the Czech Republic, Lithuania, Malta, Poland, Romania, Sweden, Luxembourg, the Netherlands, France and Italy.
France and Italy are two countries who are regarded as having particularly fragile banking systems.
The rules, known as the Bank Recovery and Resolution Directive (BRRD) ostensibly aim to shield taxpayers from the fall out of another banking crisis. Should such a crisis erupt governments will not be obliged to prop up the banks. At any rate most countries are far too deeply indebted to play such a role.
Instead, the burden is being placed on the creditors. As Reuters put it
The rules seek to shield taxpayers from having to bail out troubled lenders, forcing creditors and shareholders to contribute to the rescue in a process known as “bail-in”.
However, if recent events in Austria are anything to go by, creditors now also include depositors of banks. In April, Austria enacted legislation which removed government liability for all bank deposits.
Until then, the state would protect deposits of ordinary people and companies up to a value of €100,000. In its place a bank deposit insurance fund is being set up. This fund appears inadequate to protect savers’ deposits in the event of any kind of bank failure. We covered the story in more detail here.
Each country will enact its own version of the BRRD. How vulnerable savers are in specific countries is difficult to tell at this time. The drive towards a cashless economy which has accelerated in recent months makes deposit holders and savers ever more vulnerable.
This bail-in legislation which is being driven by the BIS through the Bank of England, ECB, Federal Reserve and Federal Deposit Insurance Corporation (FDIC) appears designed to protect banks by allowing them to confiscate deposits to prop them up rather than the noble stated objective – “to shield taxpayers”.
This doesn’t sound so bad… until you realize that another word for “bank creditor” is “depositor”. Remember, your bank deposits are legally loans made from you to the the bank. That’s why they pay you interest, however little that might be.
So, when the bank needs money, instead of going to the taxpayers to get it, they can simply take it from their depositors. This explains why the war on cash is heating up; the banks want to make sure that you don’t take your money out of the banking system in case they need it to pay their debts.
And don’t think this is an EU-only thing. The only reason the USA isn’t taking similar action is because the US banks already have a legal framework that permits it. See: MF Global.