Europe’s bank can now serve themselves on the private deposits accounts.

After the subprime crisis and after the Greek Bankruptcy, it was taxpayers’ money that bailed out the financial institutions.
For Europe, Chypre’s bankruptcy was the final point of rupture in the current economical regulations and laws.
In most of the European countries, private deposits are guaranteed by the state up to a certain amount. However, by regulations, the deposits must be back up by collateral.

This collateral is rated by agencies (Fitch, S&P, Moody’s etc) to determine if it is safe to cover the deposits.
So, in order to understand the implications of such a law, we must first understand what is banking

What is Banking ?

Banking is a simple business where a bank borrows money at a rate (A) and then lends it to another party for another rate (B). Rates A and B representing the compounded interests. The bank’s profit and loss is then simple calculated by doing B-A.
Note: all banks that stood by their normal activities went through the subprime crisis without a sweat.

Today, banking has become a lot more complicated as the financial systems created derivative and structure products. Originally mainly done for insurance purposes, those products have now turned into massive speculation activities.

We have now universal banks meaning the mix between what is called corporate and private banking. Meaning that the funds the bank receives are mixed and spread out to other departments for other funding.

This is important to understand as the vast majority of bank’s going AWOL comes from the corporate part of their activities.

European Debt and Basel III

If you owe 100 000 euros to a creditor and can’t pay back, you have a problem.
If you owe 1 trillion euros to a creditor and can’t pay back, the creditor has a huge problem.

Like in the US, the European debts have grown too huge to be sustainable and too big to fail.
Governments have been issuing debt (bonds) after debt. Basel III regulation indicated the private deposits must be backed by government bonds up to a certain percentage. I think it’s around 8% or 10% something like this.

In 2014-2015, when Chypre went bankrupt, Europe did not care as much as for Greece. They receive no bailout from an already drained EU. As such, since banks did not receive any more funds, deposit owner could not get their money out and the Chypre government ordered a special tax on deposits to bail out the banks.
Following this episode, the EU put in place a new regulation in case of government bankruptcy…

The EU bailout plan in case of Gvt default

After Chypre, new regulations came out concerning the rights of a debtor and the rights of a creditor.
It basically went like this: if a government cannot pay their debt anymore, the creditors can vote to see how to reimburse themselves (a gvt owning their own debt are not allowed to vote) : meaning creditor could lay their hands on Versailles for example.

Now coupled with the backing of deposits with gvt bonds, those regulations now turned the table completely around!

The reinforced European regulation and the disappearance of cash

Now that banks can bail themselves out by picking on deposits higher than 100K euros.
EU governments are currently fighting to lower the paper and coins cash use: for example, in France, you are not allowed to pay by cash anything above 1000 euros. This is done to reinforce fiscal control and also used as a big data structure to know everything about you.

Note: the FMI already proposed to solve the debt issue by serving themselves on the cash deposits. The Christine Largarde proposed to tax not only the cash but everything else (house, cars etc)…

What does it means?
1- It means the state bonds are not backing private deposits anymore
2- It means that deposits are backing state debt.
3- It means there will be no more cash available to deposits owner to get from the bank if they smell something fishy.
4- It means the creditor own the debt, thus the country (at least on paper)
5- It means the people become... (I let you finish the rest of this sentence)

Good or bad, it’s for you to decide !

a reply to: Gogore

In Canada, Flaherty put the same structure into the 2013 economic action plan. Banks can rape depositor accounts in the event of government default. Just wait till that happens....

Cheers - Dave

1- It means the state bonds are not backing private deposits anymore
2- It means that deposits are backing state debt.

People that keep their money in banks are idiots.

a reply to: intrptr

Or have been fooled.

I keep my money in the bank to pay bills and buy shopping. I own silver and other tangible assets, but to claim that people are idiots for having money in the bank is a little harsh.

but if the banks take the depositors money then the banks will have to close their doors and go out of business because NOBODY will ever trust the banks again,no trust = no more deposits, ever.

originally posted by: Tardacus
but if the banks take the depositors money then the banks will have to close their doors and go out of business because NOBODY will ever trust the banks again,no trust = no more deposits, ever.

Most employers require you to give then bank account details in order for them to pay you each month. Utility companies also require that you give them a bank account to make direct debit withdrawals, and your mortgage lender or landlord will want a standing order set up. It's practically impossible to use online shopping now without a credit card number. Only 6% of all transactions are now made with real money. The latest advancement in store shopping now is tap and pay, rather than chip and pin.

a reply to: stormcell

yeah but, the banks are going steal all the depositor`s money including their commercial depositors. I don`t think anyone, including small businesses and corporations are going to deposit any money in a bank again.

so, how will companies pay their employees? with cash? that would wreck the tax base because cash is an invitation for tax evasion.besides that there isn`t enough physical cash for everyone to be paid in cash.
even if a company was foolish enough to deposit money in a bank again, most of their employees won`t.The employees will take their paper paycheck to the bank and cash it.Banks don`t keep enough cash on hand to cash all the paychecks that are issued in this country.
if people don`t get paid they won`t work.

even if people somehow did get their money back,most people wouldn`t trust the banks again.
if the banks steal their depositors money it will completely wreck the entire financial system.
maybe that would be the whole point, to destroy the people`s faith in the current financial system so that they would welcome a new system, any system,as long as it was different than the system that stole their money.
maybe a something like a cashless system that uses a global currency?

a reply to: Tardacus

Its actually not a given choice. like indicated by Joneselius, you need electronic means to pay up or receive money.
Moral persons (or firms) will not be impacted by this. For them, it might be a rise in taxes.

A couple of the consequences of such a politic are:

1- if a bank actually goes bankrupt, before serving themselves on their private clients deposits, it is more likely that this bank will be bought by a competitor. there are many ways a bank can refund itself : increase of capitalization, low rate borrowing (even negative interest rates today : EUR / GBP / DKK/ SEK / CHF : all those currencies have negative interest rates or disguised taxes) , in case of a too big too fail, they will be bailed out by other banks that have assets in their books or joint ventures etc.

2- it is also a means to pay up public debt without the politics being touched: blame the financial system

originally posted by: Tardacus
but if the banks take the depositors money then the banks will have to close their doors and go out of business because NOBODY will ever trust the banks again,no trust = no more deposits, ever.

It's something of a last resort, and if we do move to a cashless society (we're pretty much there already) you won't have an option.

Basically, WHEN (not if) another crash happens rather than the government bailing out the banks they're going to have the people do it. Sure, it will lead to a massive drop in bank capital as people pull out their money and avoid using the banks but on the other hand it won't result in all of them closing like would happen if no bail out happens.

originally posted by: TardacusThe employees will take their paper paycheck to the bank and cash it.Banks don`t keep enough cash on hand to cash all the paychecks that are issued in this country.

if people don`t get paid they won`t work.

Don't underestimate what people will do when their family is going hungry. Nothing says a bank has to give you cash for your paycheck, they just need to credit your account. If they don't have the cash to pay you, and you don't take the balance in your account what are you going to do when it comes time to buy food or pay rent?

Looks to me like the backbone of any economy, the working man/woman, is mightily screwed, as usual, and the banks wonder why the backbone does not like them?

a reply to: pikestaff

If you think this is bad, get a look into the negative interest rates topic.
Its hilarious, disguised taxes !