National Planning Cyprus-Style Solution for New Zealand Banks
March 19th, 2013We have always assumed that a total loss of deposits was possible with New Zealand banks. So, *meh*
Via: Green Party:
The National Government is pushing a Cyprus-style solution to bank failure in New Zealand which will see small depositors lose some of their savings to fund big bank bailouts, the Green Party said today.
Open Bank Resolution (OBR) is Finance Minister Bill English’s favoured option dealing with a major bank failure. If a bank fails under OBR, all depositors will have their savings reduced overnight to fund the bank’s bail out.
“Bill English is proposing a Cyprus-style solution for managing bank failure here in New Zealand – a solution that will see small depositors lose some of their savings to fund big bank bailouts,” said Green Party Co-leader Dr Russel Norman.
“The Reserve Bank is in the final stages of implementing a system of managing bank failure called Open Bank Resolution. The scheme will put all bank depositors on the hook for bailing out their bank.
“Depositors will overnight have their savings shaved by the amount needed to keep the bank afloat.
“While the details are still to be finalised, nearly all depositors will see their savings reduced by the same proportions.
“Bill English is wrong to assume everyday people are able to judge the soundness of their bank. Not even sophisticated investors like Merrill Lynch saw the global financial crisis coming.
“If he insists on pushing through this unfair scheme, small depositors can be protected ahead of time with a notified savings threshold below which their savings will be safe from any interference.”
Dr Norman questioned the Government’s insistence on pursuing Open Bank Resolution when virtually no other OECD country uses it.
“Open Bank Resolution is unprecedented in the world. Most OECD countries run deposit insurance schemes which protect people’s deposits up to a maximum ranging from $100,000 – $250,000,” Dr Norman said.
“OBR is not in line with Australia, which protects bank deposits up to $250,000.
“A deposit insurance scheme is a much simpler, well-tested alternative to Open Bank Resolution. It rewards safe banks with lower premiums and limits the cost to taxpayers of a bank failure.
“Deposit insurance will, however, require the Reserve Bank to oversee and regulate our banks more closely – a measure which is ultimately the best protection against bank failure.”
My sympathies on this issue were influenced by reading about how Cyprus is the Cayman Islands or Bahamas style banking country for some of Europe. In other words, the bulk of their deposits are from the far upper class (including a few banksters themselves) rather than ordinary people. Cryptogon often refers to money laundering and insider advantages in this style of bank. So perhaps the powers were weighing system collapse vs. a smaller penalty on the group causing the problem.
Of course, that would suck to be a soon-to-be pensioner or upper middle class individual who didn’t benefit from unethical activity. How many regular depositors use these banks. Most wealthy people don’t keep cash in bank accounts at 1% – they put it in investments, unless they have a good reason.
What I’d like to figure out is how their banks are organized. The U.S. used to have distinct investment banks and regular savings and loans. Are there investment banks that they could target which would more decisively target the people benefitting from the current system?
Mish (Mike Shedlock) has an article up on this issue:
http://globaleconomicanalysis.blogspot.ca/2013/03/fraudulent-guarantees-fictional-reserve.html
He rightly points out that Deposit Insurance is largely a fraud anyways, intended to placate the sheeple.
An email to a friend from yesterday:
From the start, we assumed that we could lose any deposits with banks
here. There are no protections for depositors.
So if it turned out that we lost 10% or 20% of deposits in a bank
failure, that would be a lot less than we expected to lose.
Unlike Cyprus, though, the NZ Government is free to print its stupid
fiat currency if it wants. I’d expect that to happen long before a big
bank failure.
In effect, that’s what deposit guarantees are: Slicing up the confetti
and saying that people can have “confidence” knowing that their money is
safe.
So, take the “haircut” when the bank goes down, or lose buying power
through deposit insurance…
Russians apparently have a saying about having to deal with the mob on a
day-to-day basis:
“Everybody pays.”
That’s it.
As an equivalent example, the U.S. social security system charges a 7.5%+ 7.5% flat tax on incomes below $110,000. SS revenue is used to help balance the budget of the general fund, or to hide the deficit. Much of this goes to items which people earning over $110k benefit from. The money isn’t put in a lock box, so to speak, or ‘invested’ in a genuine way. All in all, the lower quintile benefits by getting more out than they paid in (and everyone else benefits by not needing to take care of older relatives or pay charity), but the middle quintile is unfairly paying to keep the system stable.
@quintanus
I sent that email above to a guy who, in 2001, said the following to me:
“It would be a lot easier to go out through the bottom than the top.”
Probably the most important words I’ve ever incorporated into my life.
Trying to maintain a so-called middle class existence, by conventional means, is a recipe for ruin.