Why Bank Bail-Ins Will Become the New Bailouts A bail-in is when a bank recapitalizes itself by tapping its creditors, including depositors. Most people think of the money they deposit into the bank as a personal asset they own. But that’s not true. Once a deposit is made at the bank, it’s no longer your property. It’s the bank’s. What you own is a promise from the bank to repay. It’s an unsecured liability. That’s a very different thing from owning physical cash stuffed under your mattress. Money deposited into the bank technically makes you a creditor of the bank. You’re liable to get burned from a bail-in should the bank get into trouble . People in Cyprus had to find this out the hard way in early 2013. People awoke on an otherwise normal Saturday morning to the shock that the money in their bank accounts had been taken by a bail-in to recapitalize the banks. Welcome back to The Atlantis Report. You are here for your daily dose of the truth, the whole truth, and nothing but the truth. Please take a second to hit the like button, hit the subscribe button, and don't forget to also hit the notification bell. Thank You. fraud, and financial complexity go hand in hand. Let's clear up that The FED didn't cram money down bankster throats. They wanted it, they got it. Giving free money to banks is what THE FED exists for. This also doesn't make sense when thinking logically. Deposits are a liability, not asset to the bank. But oh wait, depositors are actually just unsecured creditors in this predatory system. I'm glad I learned about economics a long time ago, but god I hate finance. For every dollar the FED prints up, it makes all the others worth less, one day you wake up (like this week) and your dollars are worthless. No one wants them eh? So, the FED all along has wanted to make its fiat worthless, by design. If you borrow money from someone that just creates those money out of thin air in their office, it's not really a loan. And why are people paying property taxes on property that the banks basically owns. Most people just own their house and cars in name only. How does one raise reserves for cash,which are themselves RESERVES??? The question has a rhetorical point that people inexplicably do not mention. There is essential context being left out of this discussion. Reserves are something you hold versus CREDIT. No Reserves are necessary versus TANGIBLES because they are their OWN RESERVES. Let's imagine that you put a Monet into a bank. The banker enters one Monet as a liability to signify he owes you one Monet. He then enters one Monet on his asset sheet under the facility where he stores it, to signify that he HAS ONE MONET. The painting IS THE RESERVE, because the two entries to the transaction balance, and cannot be made to unbalance. But this would be a Demand Deposit account. From the moment you make the deposit you don't own a PAINTING. Rather you own. PROMISE from the bank to return your painting. The bank, however, so long as the bank maintains physical possession, does not have a counter-party and therefore requires no reserve, because the painting IS THE RESERVE. It is the collateral. Now consider the difference made by credit. Let's say you told the banker you had no intention of taking immediate possession of the painting. What if he offered to market it to produce a 1% yield for you? So you 'deposit' your painting whose current market value is $100M. And the bank credits your MARKET account for $100M... So right at this point in the transaction the bank has a liability entry for your account in the amount of $100M, and it has a painting whose current value is $100M. But it owes you the money, not necessarily the painting. Reserves are collateral the bank would need to keep in the event the market value of that painting dropped below $100M. Now, let's see how the bank can get you your yield. The bank could Lease the painting to a Museum. But they need something in place of the painting that is worth $100M to be collateral for that $100M liability entry the bank owes you. So, they could require the museum to post a bond for $100M with a coupon for 2% or $2M/yr. Now you own a promise from the bank for $100M and 1%. The bank now owns a promise from the Museum (or whoever did the bond for them) for $100M + 2% /yr. The bank will get 1% for services. You get the other 1%, plus that original $100M promise that represents the painting. In this instance the bond represents the Reserve...maybe. Why maybe? Well how sure can anyone be that the entity that wrote it can actually pay $100M? The museum didn't write a bank a check for $100M. More likely the bond is ACTUALLY backed by about $3M-$10M. If your bank also wrote the bond then they probably had the museum transfer them $3M to back, to be the RESERVE for, the bond. The rest, if the painting were stolen or destroyed, would have to come from the museum's or the bank's profits. Alternatively, if the author of the bond were a different bank, then your bank might have to purchase a Reserve Asset from the Central Bank's Reserve Asset List, equal in value to 3-10% of the paintings value, to collateralize the $100M. So. What do all the Central Bank recognized reserve assets have in common? They are either tangible monetary assets (like PMs) or they are Treasuries, qualified Agency Debt, or qualified Agency MBS. Shortly, they are all the same assets that Central Banks use to collateralize the creation of currency. So what's the unmentioned and unmentionable subtext to Mish's somewhat absurd claim that banks have too much cash? IT IS THIS: They don't have cash. Your deposits are just some other bank's unbacked credit. Your cash isn't cash. Your cash is someone's loan. Most people do not realize that this is why banks pay those insultingly fractional percentages of interest on your checking account. It means that you have loaned them your money, which in now their money, rather than they have agreed to serve as custodians of your money, which remains your money. The reckoning is going to be huge. If anything the reverse repo snafu shows us what QE really is. It's a dumb placebo. Fed prints reserves and takes t-bills from banks, this is QE. Banks say we need those t-bills and asks for them right back in reverse repo, and the reserves entries the fed created are canceled out so in effect nothing has happened. QE + reverse repo = big fat nothing. Want to understand what this will look like, read up on the banking history of Venice. Their political sides, investments... Origin, creation, what they spent big on, who they invested in where they escaped after what they did to Venice. Why select Venice to settle in? why they had to stay in a swamp city, how money was made, controlled and invested via banking networks out of Venice Spending in the UK, who they supported and talked with during the Crusades, massive Protestant book printing ; while under Catholic banking protection. Decades and generations of banking investment thinking and history can be understood via the banking history of Venice... What side they backed with all their wealth and why... How a person got to stay in banking and generations protected their wealth from any new banks. Who could become a banker and stay in banking. The financial crisis of 2008 ushered in the term "too big to fail," which regulators and politicians used to describe the rationale for rescuing some of the country's largest financial institutions with taxpayer-funded bailouts. Heeding the public's displeasure over the use of their tax dollars in such a way, Congress passed the Dodd-Frank Wall Street Reform and Consumer Act of January 2010, which eliminated the option of bank bailouts but opened the door for bank bail-ins. So what is the difference Between Bank Bail-In and Bank Bailout . A bail-in and a bailout are both designed to prevent the complete collapse of a failing bank. The difference lies primarily in who bears the financial burden of rescuing the bank. With a bailout, the government injects capital into the banks to enable them to continue to operate. In the case of the bailout that occurred during the financial crisis, the government injected $700 billion into some of the biggest financial institutions in the country, including Bank of America Corp , Citigroup , and American International Group AIG. The government doesn't have its own money, so it must use taxpayer funds in such cases. According to the U.S. Treasury Department, the banks have since repaid all of the money. With a bank bail-in, the bank uses the money of its unsecured creditors, including depositors and bondholders, to restructure their capital so it can stay afloat. In effect, the bank is allowed to convert its debt into equity for the purpose of increasing its capital requirements. A bank can undergo a bail-in quickly through a resolution proceeding, which provides immediate relief to the bank. The obvious risk to bank depositors is the possibility of losing a portion of their deposits. However, depositors have the protection of the Federal Deposit Insurance Corporation (FDIC), which insures each bank account for up to $250,000. Banks are required to use only those deposits in excess of the $250,000 protection. As unsecured creditors, depositors and bondholders are subordinated to derivative claims. Derivatives are the investments that banks make among each other, which are supposed to be used to hedge their portfolios. However, the 25 largest banks hold more than $247 trillion in derivatives, which poses a tremendous amount of risk to the financial system. To avoid a potential calamity, the Dodd-Frank Act gives preference to derivative claims. When Bail-Ins Become Statutory . The provision for bank bail-ins in the Dodd-Frank Act was largely mirrored after the cross-border framework and requirements set forth in Basel III International Reforms 2 for the banking system of the European Union. It creates statutory bail-ins, giving the Federal Reserve, the FDIC and the Securities and Exchange Commission (SEC) the authority to place bank holding companies and large non-bank holding companies in receivership under federal control. Since the principal objective of the provision is to protect the American taxpayers, banks that are too big to fail will no longer be bailed out by taxpayer dollars. Instead, they will be bailed in. What's Europe Experiments With Bail-Ins . Bank bail-ins have been used in Cyprus, which has been experiencing high debt and possible bank failures. The bail-in policy was instituted, forcing depositors with more than 100,000 euros to write off a portion of their holdings. Although the action prevented bank failures, it has led to unease among the financial markets in Europe over the possibility that these bail-ins may become more widespread. Investors are concerned that the increased risk to bondholders will drive yields higher and discourage bank deposits. With the banking systems in many European countries distressed by low or negative interest rates, more bank bail-ins are a strong possibility. the solution : Let the banks fail. Put the owners and Boards in jail and then start the banks anew. This was The Atlantis Report. Please Like. Share. Leave me a comment. Subscribe. And please take some time to subscribe to my backup channels, I do upload videos there too. You'll find the links in the description box. You will also find a PayPal link if you want to make a donation. Thank you wholeheartedly to all those of you who have already donated. Stay safe and healthy friends!
The Financial Armageddon Economic Collapse Blog tracks trends and forecasts , futurists , visionaries , free investigative journalists , researchers , Whistelblowers , truthers and many more
No comments:
Post a Comment