The European Union will seek on Friday to forge rules to force losses on large savers when banks fail, a sensitive reform that could shape how the euro zone deals with its sickly banks. A draft EU law that will form the basis of discussions recommends a pecking order in which first bank shareholders would take losses, then bondholders and finally depositors with more than 100,000 euros ($132,000) in their account. That would make the harsh treatment of savers, which was part of Cyprus's bailout in March, a permanent feature of Europe's response to future banking crises. EU countries would be required to follow these rules when closing banks. http://m.theage.com.au/business/wor...-who-pays-when-banks-fail-20130621-2omjp.html But but but but......they said Cyprus was a one off?
History will simply repeat itself. The "big money" whether it be shares, bonds or deposits will be withdrawn well before the bank fails leaving the ma and pa retiree or small time investor or local business owner to foot the bill.
That looks about right to me, as far as i understand it. Shareholders first, then bondholders, then depositors. It stands to reason that those with more money in the bank have more to lose. Maybe when we come out of the other side of this crisis it will be understood that wild lending by banks is not a good thing. That if banks are making huge profits they are taking huge risks. Who am I kidding? It will for awhile but a few decades down the track everyone will be convinced the government is god again and we'll get the whole thing again.
It's broadly the right order except that (as discussed the other day in JulieW's thread) with any other business that trades while insolvent the order of losses would be first shareholders, then bankruptcy, then unsecured creditors, then secured creditors (I think that's the full list). But as we all know the banks are already insolvent so they can't really follow that order anyway. I know I used to know this but having a mental blank - are depositors classed as secured or unsecured creditors?
Well banks do go bankrupt it's just due to the nature of FRB that the whole process can be abused. Basically because banks are managing risk and the government can through various means allow that risk to increase beyond all reason. FRB, when not subject to the free market, is open to enormous abuse. Incidentally I broadly agree with the following take on FRB http://dailyanarchist.com/2013/05/13/fractional-reserve-banking-not-fraud-not-folly/
Thanks. As I read that however, I kept going "No" in my head primarily because I think many of the interpretations of what constitute valid contracts and fraud seemed to be very shallow to what I have read from people like Hoppe etc. I am by no means eloquent enough in this area to debate it properly. It'll be a nice challenge to try to however (and in the process will improve my own understanding).
That's how it's supposed to work but the reality might pan out a little different. Remember the bondholders of one EU bank are mostly other EU banks. Wipe out the bondholders of one insolvent bank and other banks become insolvent, setting off a chain reaction. I bet that depositors will be taking haircuts before bondholders.
the way i see this.. take on more debt.. you will get saved by the goverment... save money in banking system.. you will be punished...
for people in the uk i'd suggest you spread your money across different banks (with different licenses) The if credit controls come in and you are limited to 100 per day then you can get 100 per different bank. and definitely don't hold more than 80k per bank Just something to consider before anything happens
