This Week's Question has to do with Bail ins--
We have a special report from
our friends at GoldCore.com.
"Bail-ins" pose a significant risk to savers and investors
in the coming years and yet there is a lack of appreciation
of this risk as there was a lack of appreciation of the
risks posed by the dot com crash or the fall of Lehman
Brothers, and the Eurozone and global debt crisis.
This is according to new
research conducted by investment specialists at GoldCore.
The financial experts, who predicted the property crash,
have released findings from a research document entitled
'Protecting Your Savings In The coming Bail-In Era' which
looks into one of the most significant risks facing
investors and savers today - bank and financial institution
bail-ins.
The GoldCore report
outlines how Cyprus became the defining event since it
revealed the preparations and planning of international
banking regulators and governments at the highest levels for
the coming of a 'Bail-In Regime'. Almost overnight, the
sacrosanctity of bank deposits was shattered. This made many
market participants and well-informed corporate depositors
nervous, especially in vulnerable EU countries. Until that
point, there hadn't been a realisation that 'bail-ins' would
become the template for future bank rescues.
According to the GoldCore
report a bail-in is when regulators or governments have
statutory powers to restructure the liabilities of a
distressed financial institution and impose losses on both
bondholders and depositors. While bail-in generally refers
to a bank restructuring where shareholders and various
unsecured creditors such as bondholders are forced to share
the rescue costs, after Cyprus, the term 'bail-in' became
synonymous with possible deposit confiscation, where
uninsured depositors were seen as unsecured creditors of the
bank and liable to share bank restructuring costs.
Here is the link to the
Landing Page:
http://bit.ly/1hI3pyd
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Here in Ireland is coming
down hard in the U.S. by way of freezing cold and snow. Take
care!
To the matter at hand - our Bail-In research. The following
copy will provide a good overview of the subject matter and
what the report is about.
This bail-in issue is like a sleeping volcano.
Not a question of if, it's when!
NEW REPORT REVEALS: Risk Of Depositor Bail-Ins as many
Banks Remain Vulnerable
"Bail-ins" pose a
significant risk to savers and investors in the coming years
and yet there is a lack of appreciation of this risk as
there was a lack of appreciation of the risks posed by the
dot com crash or the fall of Lehman Brothers, and the
Eurozone and global debt crisis.
This is according to new
research conducted by investment specialists at GoldCore.
The financial experts, who predicted the property crash,
have released findings from a research document entitled
'Protecting Your Savings In The coming Bail-In Era' which
looks into one of the most significant risks facing
investors and savers today - bank and financial institution
bail-ins.
The GoldCore report
outlines how Cyprus became the defining event since it
revealed the preparations and planning of international
banking regulators and governments at the highest levels for
the coming of a 'Bail-In Regime'. Almost overnight, the
sacrosanctity of bank deposits was shattered. This made many
market participants and well-informed corporate depositors
nervous, especially in vulnerable EU countries. Until that
point, there hadn't been a realisation that 'bail-ins' would
become the template for future bank rescues.
According to the GoldCore
report a bail-in is when regulators or governments have
statutory powers to restructure the liabilities of a
distressed financial institution and impose losses on both
bondholders and depositors. While bail-in generally refers
to a bank restructuring where shareholders and various
unsecured creditors such as bondholders are forced to share
the rescue costs, after Cyprus, the term 'bail-in' became
synonymous with possible deposit confiscation, where
uninsured depositors were seen as unsecured creditors of the
bank and liable to share bank restructuring costs.
How Likely Are Bail-Ins?
The report suggests that
there are two very broad 'schools of thought'. The first
school believes that the U.S. Federal Reserve, along with
partner central banks internationally, has successfully
stabilised the global financial system through low interest
rates and quantitative easing, while the EU has managed to
help recapitalise banks and avoid bank insolvencies in the
European Union and the breakup of the European Monetary
Union (EMU).
The second school is more
sceptical and believes that many banks globally remain
vulnerable to insolvency because they are being kept on
life-support due to extremely accommodating central bank
measures including near zero percent interest rates and
quantitative easing.
Here is the link to the
Landing Page:
http://bit.ly/1hI3pyd
Where Are Bail-Ins
Likely To Take Place?
Bail-ins are likely to
happen to banks that are close to failure in countries that
have adopted the international bail-in conventions and/or do
not have financial resources to bail-out their banks. Thus,
deposits in failing banks in the U.S., Eurozone, UK, and G20
nations are likely to be subject to bail-ins. European banks
have been recapitalised but should the sovereign debt crisis
return or a new global systemic crisis happen, a la Lehman
Brothers, individual banks may again face capital shortages.
Greece, Cyprus, Spain, Italy, Portugal and Ireland all
remain vulnerable. However, other countries in the EU also
have risks, including the UK, the Netherlands, Switzerland,
Denmark and France.
What Should Depositors
Do?
Depositors should examine
the financial health of their existing bank or banks. Some
issues to watch would include institutions with legacy
issues such as a high level of non-performing loans, a
possible need for recapitalisation and low credit ratings.
These banks should be avoided, as they have a higher chance
of needing restructuring and hence a higher chance of a
bail-in.
Within Europe, deposits are
insured for up to 100,000 per person, per account. Although
there is no guarantee that certain European governments
could fund their deposit insurance scheme, it is uninsured
deposits which are more at risk of a bail-in. Therefore, it
would be prudent for depositors not to hold bank deposits in
excess of 100,000 in any one European financial institution
since a) they are not insured, and b) deposits in excess of
100,000 are more likely to be bailed in.
There is an assumption that
in the event of bail-ins, only bank deposits of over
100,000 would be vulnerable. However, there is no guarantee
that this would be the case. Should a government be under
severe financial pressure, it may opt to only protect
deposits over a lower amount (e.g. 50,000 to 80,000).
Conservative wealth management, asset diversification and
wealth preservation will again become important and gold
will again have an important role to play in order to
protect, preserve and grow wealth in the coming bail-in era.
Overall, diversification of
deposits now has to be considered. However, it is vitally
important that those tasked with diversifying deposits do
not jump out of the frying pan and into the fire. This means
diversification across financial institutions and
internationally.
Here is the
link to the Landing Page
http://bit.ly/1hI3pyd
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