Legalized Bank Bail-Ins

Newly signed supranational laws amongst the world's largest 20 economic zones means many bank accounts are not fully safe from failure. Learn what the laws are and how to defend against them.

‘Legalized’ G20 Bank Bail-In Laws

Since the end of 2014, new G20 Bank Bail-In Laws have been put into place.

This means that bank depositors are now legally treated as unsecured creditors in the largest economies in the world.

G20 - (n) the world’s largest 19 national economies, including the USA, and the European Union together, a group of 20. Additionally, there are representatives of the International Monetary Fund (IMF) and the World Bank. The G20 finance ministers and central bank governors began meeting in 1999, at the suggestion of the G7 finance ministers in response to various financial crisis in the 1990s.

Bail-In - (n) to restructure a financial institution that is on the brink of failure by forcing its creditors and depositors to take a loss on their holdings. Regarded as a rescue of last resort to help a troubled financial institution's ability to attract future business. A bail-in is different from a bail-out, which involves the rescue of a financial institution typically by government credit extensions into the failing private sector.

Bail-out vs Bail-inBail-out vs Bail-in

To address potential future bank failures, the G20 bank bail-in solution is now law.

It is a relatively newly signed supranational law and purportedly the brainchild of the IMF’s current managing director, Christine Lagarde.

IMF Notes Leading to New 2014 Bank Bail-In Laws USA & G20IMF Notes Leading to New 2014 Bank Bail-In Laws USA & G20 - Source

What this new law change means is the “LEGAL” status of US and other customer bank deposits within the G20 nations, placing them on par with many common unsecured paper investments.

Now more than ever, if you give your fiat currency to a bank, it is really your responsibility to know the solvency of the bank you chose. Including understanding any possible spillover effects it may suffer under in another potential global financial crisis ahead.

Does your bank have any derivative bets on its books? You may want to find that out.

What about the FDIC?

For years bank insurance programs have lulled many main street savers to sleep soundly under the assumption that the government would always insurance covering their checking and savings accounts.

Well perhaps not so on a real basis, following another massive banking crisis.

As recently as November 8, 2017, the head of the European Union’s central bank (the ECB) has proposed to completely end bank deposit insurance for any and all bank accounts throughout the EU.

In the United States, the Federal Deposit Insurance Corporation (FDIC) currently offers a $250,000 USD limit in the USA per depositor, per FDIC-insured bank, per ownership category.

How solvent is the FDIC’s bank deposit insurance program?

As of writing this report the FDIC has some $83.2 USD billion to ensure just over $7.0 USD trillion in deposits. An additional $4.8 USD trillion in deposits appear to be uninsured and most likely above the $250,000 USD insurance threshold the FDIC currently covers.

This means essentially means for every $100 USD within the US banking system, the FDIC has just over 70¢ in its insurance coffers to pay out on. In terms of those deposits which actually fit under the FDIC $250,000 insured perimeters, the FDIC has $1.17 of insurance for every insured $100 USD in the US banking system.

The Dodd-Frank Act's supposed ban on taxpayer bailouts of the most speculative derivatives activities has been repealed by the recent Omnibus bill legislation. Thus taxpayer bailouts of potentially failing banks or financial institutions are still in play.

Most likely, the next global financial crisis will not only be met with some likely new forms of government bank bailouts, but it may also be further met with bank bail-ins as many unsecured creditors and even average Joe’s bank deposits possibly get frozen and eventually taken according to the bankrupting bank's losses.

The Financial Stability Board (FSB) is sanctioned by and literary works out of the Bank for International Settlements (BIS) building. This rather innocuous sounding organization currently guides the G20 nations’ bankruptcy resolution policies.

They wrote the following excerpt in their November 10, 2014, Total Loss Absorbency Capacity proposal on how all G20 banks should now have bank deposit bail-in options in the event of bankruptcies or large loss write-downs.

The FSB states the following on page 5, 2nd paragraph:

Total Loss Absorbency Capacity Excerpt

With these new supranational laws, executed by the G20 (on behalf of the BIS’ FSB), any and all winning megabank derivative gamblers are now 1st in line creditors.

Joe Public is an unsecured creditor, who would be lucky to get some diluted equity shares in a ring-fenced reformed bank as compensation for his lost checking and or savings account funds.

If you have a bank account with a ‘mark to model’ potentially bankrupt bank, or maybe with whom the BIS’ FSB calls Global Systemically Important Banks (see G-SIBs on page 3). Time is running out for you to reconsider who you are doing business with.

A similar bank bail-in policy was already put into action in 2013 (Cyprus) and in 2016 (Austria, see 'test case' wording).

We should all be preparing a defense, in case it ever goes global.

If you live and or bank in a G20 nation. You can expect history may rhyme at some time.

Copy of Newspaper, Bank Holiday 1933Source

Digital lockdown laws and living bank wills are being readied in case of large banking or financial institution failures. All this effort is being put forth because the real underlying issues have not been restructured or fully faced.

We’ve not structurally changed much since the last financial crisis, the situation is in fact arguably worse.

The brutal truth of new global bank bail-in laws now in place goes well beyond its outcome. The fiat currency in our bank accounts have and will always be our liability. It is a real shame we all may have to possibly relearn this lesson in a very hard way.

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