Tag Archives: bank deposits guarantee

Take Your Money Out Of The Bank

5 Sep

As we here at barnabyisright.com were first to document, Australia too has included plans to steal depositor’s money to “bail-in” the banks, in the 2013-14 Budget:

Australia Plans Cyprus-Style “Bail-in” Of Banks In 2013-14 Budget

Australian Banks “Welcome” Cyprus-Style Bail-In Plan

Australian Banks Demand Protection From Derivatives Losses Under Bail-In Plan

G20 Governments ALL Agreed To Cyprus-Style Theft Of Bank Deposits … In 2010

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But The Sheep Don’t Scatter: Banks Say “Sophisticated” Customers Have “Less Stable” Deposits

10 Jul

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Here is a shining example of bankers’ true attitude towards depositors.

In the Australian Prudential Regulation Authority (APRA) document titled ‘Implementing Basel III Liquidity Reforms In Australia’ (pdf here), the very important topic of “cash outflows” or “deposit run-off” is discussed at length.

Unsophisticated common people like you and me call it a “bank run”.

In the section titled ‘Other matters raised in submissions’, we learn that bankers consider the deposits of “financially sophisticated” customers to be “less stable” (my emphasis added):

4.2.1 Cash outflows

Retail and qualifying small and medium enterprises (SME) deposit run-off

Within the LCR [Liquidity Coverage Ratio], retail deposit balances are classified as either ‘stable’ or ‘less stable’. Stable deposit balances are those that are considered to have the lowest propensity to be withdrawn during times of stress…

Comments received

Submissions [from banks] suggested including client relationship characteristics, such as the term of a relationship, the number of products and the use of a relationship manager, to assist categorisation of the deposit. They also proposed that dormant accounts be classified as stable due to their expected inactivity in a stress event and that self-managed super fund (SMSF) deposits be eligible to be classified as stable deposits as the trustee overseeing the SMSF deposit account is not necessarily a financially sophisticated individual.

APRA - Implementing Basel III Liquidity Reforms in Australia, page 17

APRA – Implementing Basel III Liquidity Reforms in Australia, page 17

In other words, “financially sophisticated” people won’t be stupid enough to keep their money in the bank if a crisis looms on the horizon. Their deposits are “less stable”.

People who are “not necessarily financially sophisticated” will leave their money in the bank. Their deposits are “stable”.

Somewhat amusingly (to this blogger), the bankers want to classify the deposits of Self-Managed Super Fund trustees in the same “stable” category as “dormant” accounts. They consider SMSF trustees to be idiots — “not necessarily financially sophisticated individuals” — who won’t try to withdraw their money.

Under the new FSB-directed global regime agreed to by the G20 in 2010 — now being implemented by Australia, Canada, Europe, the UK and USA — just as in Cyprus, all “unsophisticated” bank depositors will get screwed overnight.

Or more likely, over weekend.

It is also worth noting the bankers’ views on internet access to bank accounts in a “crisis” (ie, possible bank run scenario):

A number of submissions objected to the inclusion of internet access as a criterion in the less stable deposit scorecard. These submissions argued that means of access was not a strong indicator of withdrawal propensity and it should be removed from the scorecard; instead, greater emphasis should be placed on deposit size as this was more consistent with ADI experience.

APRA: Implementing Basel III Liquidity Reforms in Australia

APRA: Implementing Basel III Liquidity Reforms in Australia, page 17

In other words, the banks are confident that your having internet access does not necessarily mean that you are more likely to get your money out in a crisis. Given the number of times our banks have mysteriously suffered from internet banking “outages” in recent years, I’m not surprised. It’s called “economic shock testing” (see Electro-Physics: The Theory Of Economic Warfare).

Do not be deceived by the smokescreen of the “government guarantee” for depositors.

As we have seen in The Bank Deposits Guarantee Is No Guarantee At All, Australia’s so-called “guarantee” for deposits up to $250,000 only provides for up to $20 billion in Federal (borrowed) money per bank — less than 1/10th of the amount that each of the Big Four has in (electronic) obligations to bank account depositors (ie, “creditors”).

Or should I say, it “only promises to provide for up to $20 billion…”.

There is no money actually set aside to “guarantee” any depositors.

As confirmed in the APRA document, page 15:

Fully guaranteed retail deposits

The revised Basel III liquidity framework includes an additional retail deposit category for deposits that are fully insured under a pre-funded deposit insurance scheme. The deposit insurance scheme in Australia, the Financial Claims Scheme (FCS), is not pre-funded and, as such, this category is not relevant for domestic deposits.

APRA, 'Implementing Basel III Liquidity Reforms In Australia'

APRA, ‘Implementing Basel III Liquidity Reforms In Australia’

You have been warned.

Australian banks not only have ten times more in deposit obligations than the government has guaranteed promised to provide as insurance for each bank’s eligible deposits.

As of March 2013, the banks also have a new record $21.5 Trillion in Off-Balance Sheet “business” that is mostly derivatives; an increase of $2.5 Trillion in the March quarter alone, including a $2.2 Trillion increase in Interest Rate derivative contracts:

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In the APRA document on implementing the Basel III bank liquidity reforms, we learn that the “cash outflow rate” for derivatives positions will be rated at 100 per cent of their measured value:

Additional derivatives risks

The revised framework includes a number of additional collateral outflow categories designed to ensure that risks associated with derivative positions are correctly captured in the LCR. The cash outflow rate for these categories is 100 per cent of the measured value.

APRA: Implementing Basel III Bank Liquidity Reforms, page 16

APRA: Implementing Basel III Liquidity Reforms In Australia, page 16

… while derivatives that are (supposedly) “secured” by so-called “High Quality Liquid Assets” — limited to cash; central bank reserves that “can be drawn down in times of stress”; and “marketable securities representing claims on or claims guaranteed by sovereigns, quasi-sovereigns, central banks and multilateral development banks, that have undoubted liquidity, even during stressed market conditions, and that are assigned a zero risk-weight under the Basel II standardised approach to credit risk” — these will have a cash outflow rate deemed to be zero per cent:

Derivatives secured by HQLA

The revised framework has clarified that where a derivative cash flow is secured with HQLA1, a cash outflow rate of zero per cent is to be applied.

APRA: Implementing Basel III Bank Liquidity Reforms, page 16

APRA: Implementing Basel III Liquidity Reforms In Australia, page 16

Remember that the cash outflow rate is determined by the perceived risk of it actually “flowing out”.

In the case of the form of “liquidity” known as “deposits”, APRA says (page 16) that “Stable deposit balances are those that are considered to have the lowest propensity to be withdrawn during times of stress and, hence, receive a low three or five per cent cash outflow rate. Less stable deposits are considered to have a higher propensity to be withdrawn and as a result, depending on deposit characteristics, receive a 10 per cent or higher cash outflow rate.”

So, in an actual crisis situation, just how much of the banks’ $21.5 Trillion in Off-Balance Sheet “business” will have a “cash outflow rate” of 100 per cent, and how much will have a cash outflow rate of zero per cent?

Who knows.

But one thing I do know.

I’d not want to have any of my money in a bank on the day — make that, the weekend — when we all find out.

Infographic: Shattering The Illusion Of “Guaranteed” Bank Deposits

20 Apr

It takes a bit to shock your humble blogger these days. But as a very ‘visual’ kind of person, if something is going to shock, then a powerful image is usually it.

Courtesy of “Oto”, brilliant architect of the demonocracy.info website, comes this stunning infographic.

It shows just why the US Federal Deposit Insurance Corporation’s (FDIC’s) “promise” to insure American bank depositors is a monstrous illusion.

Now please note, Australians should dismiss this as representing only an American problem at their own peril.

As shown previously, the Australian government’s Bank Deposits Guarantee Is No Guarantee At All … for the same reasons. That is, the total of funds that has been allocated to “insure” or “guarantee” the deposits of Aussie bank customers, is barely 1/10th of the amount of deposits actually “owned” by depositors.

And all the other risk factors shown in this infographic – including galactic derivatives exposures – apply here too:

Click to enlarge

Click to enlarge

An even more detailed and informative version of this infographic is displayed at Oto’s website.

Infographic: Cyprus Bank Deposits Confiscation

5 Apr

With thanks to “Oto”, creator of the superb demonocracy.info, comes this infographic on Cyprus:

Click to enlarge

Click to enlarge

Do check out the higher resolution version – with even more info – at demonocracy.info

NZ Insider: Australasian Banks Prepared To Steal Your Money “With A Few Mouse Clicks”

26 Mar

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From an Anglo Far East client note (“no”, the client is not me, and “no, sorry”, no link):

Cyprus Steals the Money

At AFE, we have said many times that when governments become desperate, the record of history is very clear – they confiscate the wealth under their jurisdiction. I am sure there are many who thought this could never happen in today’s modern economy, yet here we are, and it is happening.

A bank holiday is called, which prevents depositors in Cyprus from accessing their funds. Next, Cyprus announces that it is in negotiations with the ECB and IMF for a bailout of its biggest banks to the tune of $17B. The ECB/IMF offer to cover $10B, and Cyprus is told to come up with the rest.

The first idea was to call a bank holiday, and before depositors could get to their funds, depositors would have up to 10% of their wealth confiscated. This measure was rejected by the Cypriot Parliament.

The ECB/IMF then gave Cyprus a deadline of today to figure out a solution accompanied by the threat of cutting off rolling credit lines, therebyforcing insolvency of one or more of its largest banks and collapsing the banking system.

The end result has been the worst nightmare of depositors.If you are a depositor with more than 100,000 Euro, they will be taking up to 40% directly out of your account before you have access to your money again. The total amount of the theft: Up to €4.2 Billion Euros

“Deposits above 100,000 Euros in both banks, which are not guaranteed under EU law, will be frozen and used to resolve Laiki’s debts and recapitalize Bank of Cyprus.” – Reuters

We spoke to one of AFE’s Cyprus clients on the phone today. Comments included, “They are very afraid. The banks are still closed, and they are worried there will be bank runs.” This client also believes that once banks re-open, they will limit the amount allowed to be withdrawn in order to avoid a bank run.

New Zealand Prepares to Steal the Money

Last week we notified our clients that plans have been in place for some time in New Zealand to be able to declare a bank holiday and instantly haircut all depositors. As it turns out, this can be done with as little as “a few mouse clicks.”

AFE’s inside source (a senior developer for one of New Zealand’s largest banks) confirms that these plans started some time ago. According to this source’s personal knowledge of the system’s implementation, which facilitates instant theft on behalf of the government, this project was initiated years ago. Interestingly, it was the Reserve Bank of New Zealand that instructed all banks to put this system in place as well as providing the deadline as to when it had to be implemented.

AFE’s Duncan Cameron says, “You don’t build bridges to nowhere with no plan on walking them.”

“If depositor’s funds are protected up to €100K, and anyone holding deposits over that amount has to bail out their bank if that bank gets into trouble, it will set a precedent for other banks’ depositors worldwide who have deposits over the insurable amounts within those nations!

In Australia and the USA, the insurable amount is $250K for any single entity (person); therefore, any one entity over the insurable limit could be subject to similar scenarios.

Think you won’t be affected, that you’ll not have any of your money digital bookkeeping entries stolen to prop up a Too Big To Fail bank, because you have less than $250K there?

Think again.

As we saw in March 2012, the Australian government’s Bank Deposits Guarantee Is No Guarantee At All:

How many of them [bank customers] would know, for example, that the standing appropriation to meet any initial payout of deposits is limited to $20 billion per failed bank?

It might seem like a lot, but it pales when compared to about $200bn in eligible deposits for each major bank.

…the initial payout is effectively capped by legislation at $20bn, albeit with provision for the government to go back to the parliament for more.

There is no mention of any of this in Swan’s press release.

After reading that document, you’d come away thinking that the government will cough up for pretty much all bank deposits of less than $250,000 in full.

In fact, only one-tenth of all eligible deposits (ie, under $250K) would be protected.

At best. If you’re lucky.

The important outtake from all of this?

“Trust” in the banking system – and government – is gone.

The events of recent days in Europe all tends to suggest that Cyprus is just a test case.

Or as Eurogroup head, the Dutch Finance Minister let slip, Cyprus is a template for Europe.

And the rest of the West.

The Bank Deposits Guarantee Is No Guarantee At All

15 Mar

Just how much do you trust the “safety” of holding your savings in the bank?

In Think You’ve Got Cash In The Bank? Think Again, we saw that what you believe you have in the bank isn’t really there at all.

According to the RBA’s records, there is only $53 billion in cash notes issued by the RBA in circulation … versus $986 billion in claims on cash (ie deposits) by private customers and non-financial businesses.

In reality, all you have in the bank is electronic digits. Binary code, with your name and an account number assigned to it.

But at least “your” electronic digits in/at the bank are “safe”, because the government placed a guarantee on the safety of bank deposits in the GFC, right?

Wrong.

There is a hidden flaw in the government’s Bank Deposits Guarantee scheme. One which renders the guarantee largely useless.

The Government Guarantee is just another con-fidence trick, to prevent another bank run … like the silent bank run we had during the GFC peak in late 2008.

Richard Gluyas at The Australian has the story of the Great Big Government Bank Deposits Guarantee … that isn’t (emphasis added):

Limited guarantee fuelling deposit war

The intense competition for deposits is not only eroding bank profit margins, it is also maintaining the rage of non-bank institutions offering rival fixed-income products.

These institutions are prudentially regulated, yet they confront a playing field heavily tilted against them by a deposit guarantee that Wayne Swan said last September “protects the savings held in around 99 per cent of Australian deposit accounts in full”.

There is no doubt that the guarantee, reduced last month to a permanent cap of $250,000 per person per institution, has facilitated the stampede into term deposits.

Flows into products like mortgage funds, and even the booming annuities market, have suffered as a result.

But the question is whether the stampede would be slowed if bank customers read the fine print of the guarantee.

How many of them would know, for example, that the standing appropriation to meet any initial payout of deposits is limited to $20 billion per failed bank?

It might seem like a lot, but it pales when compared to about $200bn in eligible deposits for each major bank.

In the highly unlikely event of a major bank failure, any payments under the Financial Claims Scheme would be recovered through the liquidation of the bank.

An industry levy would be applied if there’s a shortfall from a realisation of assets.

But the fact remains that the initial payout is effectively capped by legislation at $20bn, albeit with provision for the government to go back to the parliament for more.

There is no mention of any of this in Swan’s press release.

After reading that document, you’d come away thinking that the government will cough up for pretty much all bank deposits of less than $250,000 in full.

The reality, though, is that the guarantee underwrites an initial payment, which then gives way to other measures.

Maybe it was felt that the guarantee was already too complex without a treatise on the commonwealth’s contingent liabilities.

It was surprising, though, to find there was almost complete ignorance in the wealth management industry yesterday about the “limited” $20bn standing appropriation.

Yet another example of blatant government deceit.

The list is very, very long.

If word really got out in the Australian community, if the truth were widely known about our house-of-cards banking system, and the “limited” nature of the Government Guarantee scheme, good old Mattress Bank would begin to do very well.

Again:

The private banks keep reserves of cash distributed in 60 storerooms across the country with an average of about $35 million in each. They get topped up by the Reserve Bank before Christmas, when demand for cash typically rises by about 6 per cent, and at Easter, when there is a smaller increase.

But in early October, the Reserve Bank started getting calls from the cash centres for more, especially in denominations of $50 and $100.

The Reserve Bank has its own cash stash. It is coy about exactly how much it holds, but it is understood to be in the region of $4 billion to $5bn.

As the Armaguard vans worked overtime ferrying bundles of $10,000 out to the cash centres, the Reserve Bank’s strategic reserve holdings of $50 and $100 notes started to run low and the call went out to the printer for more. The Reserve Bank ordered another $4.6bn in $100s and another $6bn in $50s…

Households pulled about $5.5bn out of their banks in the 10 weeks between US financial house Lehman Brothers going broke – the onset of the global financial crisis – and the beginning of December. That is roughly 80 tonnes of cash salted away in people’s homes. Mattress Bank is doing well, was the view at the Reserve. A year later, only $1.5bn had been put back.

(see Our Banking System Operates With Zero Reserves)

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