Topic: Bank bail-in

In a Nutshell

In the wake of the global financial crisis in 2008 during which Western governments and banking authorities printed trillions of dollars bailing out private (too-big-to-fail) banks, new legislation has been introduced in most OECD countries to ensure that depositors’ money instead of taxpayers’ money will be used next time a bank fails.

FAQ

The problem is not so much that instead of taxpayers (read you) bailing out a failing bank, depositors (read you) have to bail it out. The problem is twofold: (1) a depositor is typically the very last in the line of creditors when a bank fails, and (2) many banks are loaded with toxic derivatives and your deposits are intermingled with them.

No. Derivatives were the primary cause for the global banking crisis in 2008. Not only have these derivatives not gone away, the total notional value held by these too-big-to-fail banks are now greater than in 2008. See Part 2: The Derivatives Time Bomb

Your money becomes the bank’s asset and you become an unsecured creditor of the bank.

No, the amount of deposit insurance would be like five drops in a bucket when one of these banks loaded with derivatives blows up. See Part 3: Institutionalizing the Money Grab

Dead last. To add insult to injury, counter-parties to the bank’s derivatives are first in line among the secured creditors to salvage from the carcass when the bank fails.

It has already happened in Cyprus and something is being ‘arranged’ in failed banks in Austria and Portugal. The only reason it did not happen during the last financial crisis is because your government printed trillions of dollars to bail out the banks. Such is unlikely to happen again next time.

(1) Learn the type of derivatives exposure your bank has and take your money out of those banks that are heavily exposed, and (2) keep your balance below the FDIC/CDIC limit in order to soften the blow.


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