Last updated on March 22nd, 2015
During the next banking crisis, any ‘money’ that you and I have in the bank will be ‘bailed-in’ after a financial collapse. And if you think that your money is protected with your bank account’s FDIC backing, think again.
During the recent G20 meeting (mid-November), the member nations decided that your bank deposits will become property of the bank if a crisis takes it down.
This means that the bank will be able to pay off their creditors first (if there’s any left to pay) and the money will no longer be yours. The new rules essentially change the status of you as a depositor (of your money) to that of an investor in the bank. And as with any investor in the stock market (for example) you will be subject to losing your money.
The rules have completely changed…
Essentially the depositors are now responsible for bailing-in the banks for any losses during a banking crisis (can you say, ‘derivatives’?). The derivatives exposure is said to be (at a minimum)$300 Trillion. That’s with a ‘T’. Under the new rules (for example), if the derivatives bubble begins to burst and you rush to the bank to withdraw your money (or assume that you will be protected by FDIC insurance), now apparently there are rules in place whereby your money (deposits) will no longer really be YOUR money.
Under the FDIC, US deposits that are less than $250,000 are protected by federal deposit insurance. HOWEVER, the insurance funds are entirely inadequate to handle a major collapse. The insurance money set aside for banking collapse is apparently just $25 billion, a teeny tiny fraction of what would be needed. Even if only one major (too big to fail) bank fails, there will be nowhere near enough insurance money. And if the $300 trillion derivatives market unwinds, the money is not even a speck of the overall enormity.
Within the ‘Executive Summary’ of the (IMF) International Monetary Fund paper, “From Bail-out to Bail-in: Mandatory Debt Restructuring of Systemic Financial Institutions“, we find one definition of ‘bail-in’ as follows:
bail-in, which is a statutory power of a resolution authority (as opposed to contractual arrangements, such as contingent capital requirements) to restructure the liabilities of a distressed financial institution by writing down its unsecured debt and/or converting it to equity. The statutory bail-in power is intended to achieve a prompt recapitalization and restructuring of the distressed institution.
A few points of note:
What was formerly called a “bankruptcy” is now a “resolution proceeding.” The bank’s insolvency is “resolved” by the neat trick of turning its liabilities into capital. Insolvent TBTF banks are to be “promptly recapitalized” with their “unsecured debt” so that they can go on with business as usual.
“Unsecured debt” includes deposits, the largest class of unsecured debt of any bank. The insolvent bank is to be made solvent by turning our money into their equity — bank stock that could become worthless on the market or be tied up for years in resolution proceedings.
The power is statutory. Cyprus-style confiscations are to become the law.
Rather than having their assets sold off and closing their doors, as happens to lesser bankrupt businesses in a capitalist economy, “zombie” banks are to be kept alive and open for business at all costs — and the costs are again to be to borne by us.
During bank failure, creditors will have first priority for any funds which may be available for pay out. Since bank depositors money is now considered to be ‘unsecured debt’, the deposits will essentially be converted to bank equity – which means that the depositors will become last to be paid out. And there might not be any money left to be paid out.
Even though the FDIC isn’t there to support a derivatives failure, the FDIC insurance does not and will not (ever) have even a tiny portion of the $300 trillion among the banking losses of a derivatives crisis. And if you think that all it will take is for the government to print the money (enough to save the banks) – all that will be left (after currency devaluation due to massive printing) will be a small fraction of what your dollar was once worth.
You might ask, why did the rules just change at the recent G20 meeting?
Answer: because the banking system is a private entity which will do whatever it can to transfer the wealth from YOU to THEM during a crisis. And they did it right under your nose. No mainstream press. No mainstream media coverage. No nothing.
Do the banking elites suspect a meltdown in our future?
What are we to do with this new information? I suppose if you have no money in the banking system, then you will not be directly affected by a banking collapse (other than the probable horrible follow-on consequences of an entirely collapsed economy).
Throughout history, when a banking crisis has unfolded, depositors rush to the bank to get their money. They are almost always too late. Tangible assets become the things of real value. These tangible assets vary for everyone.
Maybe it’s time to become your own banker…