Coming To Your Bank Account Soon - THEY Take 10% by 'Law'......

[Magda Hassan]

How Cyprus Exposed The Fundamental Flaw Of Fractional Reserve Banking


Submitted by Tyler Durden on 03/31/2013 18:03 -0400

In the past week much has been written about the emerging distinction between the Cypriot Euro and the currency of the Eurozone proper, even though the two are (or were) identical. The argument goes that all €'s are equal, but those that are found elsewhere than on the doomed island in the eastern Mediterranean are more equal than the Cypriot euros, or something along those lines. This of course, while superficially right, is woefully inaccurate as it misses the core of the problem, which is a distinction between electronic currency and hard, tangible banknotes. Which is why the capital controls imposed in Cyprus do little to limit the distribution and dissemination of electronic payments within the confines of the island (when it comes to payments leaving the island to other jurisdictions it is a different matter entirely), and are focused exclusively at limiting the procurement and allowance of paper banknotes in the hands of Cypriots (hence the limits on ATM and bank branch withdrawals, as well as the hard limit on currency exiting the island).
In other words, what the Cyprus fiasco should have taught those lucky enough to be in a net equity position vis-a-vis wealth (i.e., have cash savings greater than debts) is that suddenly a €100 banknote is worth far more than €100 in the bank, especially if the €100 is over the insured €100,000 limit, and especially in a time of ZIRP when said €100 collects no interest but is certainly an impairable liability if and when the bank goes tits up.
Said otherwise, there is now a very distinct premium to the value of hard cash over electronic cash.
And while this is true for Euros, it is just as true for US Dollars, Mexican Pesos, Iranial Rials and all other currencies in a fiat regime.
Which brings us to the crux of the issue, namely fractional reserve banking, or a system in which one currency unit in hard fiat currency can be redeposited with the bank that created it (as a reminder in a fiat system currency is created at the commercial bank level: as the Fed itself has made quite clear, "The actual process of money creation takes place primarily in banks") to be lent out and re-re-deposited an (un)limited number of times, until there is a literal pyramid of liabilities and obligations lying on top of every dollar, euro, or whatever other currency, is in circulation. The issue is that the bulk of such obligations are electronic, and in its purest form, a bank run such as that seen in Cyprus, and preempted with the imposition of the first capital controls in the history of the Eurozone, seeks to convert electronic deposits into hard currency.
Alas, as the very name "fractional reserve banking" implies, there is a very big problem with this, and is why every bank run ultimately would end in absolute disaster and the collapse of a fiat regime, hyperinflation, and systemic bank and sovereign defaults, war, and other unpleasantries, if not halted while in process.
Why?
One look at the chart below should be sufficient to explain this rather problematic issue of a broken banking system in which trust is evaporating faster than Ice Cubes in the circle of hell reserved for economist PhD's.

In summary:

• Total US Currency in circulation (i.e., all US Dollars out there): $1,102 billion (source)
  
• Total Deposits in US Commercial Banks: $9,294 billion (source)
  

Which means that if (and we are not saying it will) a Cyprus-style fiasco were to occur in the US, and those $9.3 trillion in total deposits seek to obtain
"physical representation" in the form of actual currency (i.e., a systemic bank run), just as all those lining up in front of Cypriot ATMs are desperate to do each and every day when they have a €300 limit on physical cash withdrawals, there will be a roughly 88% haircut for every single dollar that US savers believe is "safe" in the bank.
Of course, this entire example is only applicable within the confines of the fiat monetary system, assuming there are no other currency equivalents, such as precious metals, hard assets, or even virtual electronic currencies. But naturally to the broken monetary system, which relies on nothing but faith, trust and, hence, credit, even the thought of an alternative to a regime in which the breakdown of trust results in a 90% (at least) haircut of accumulated wealth, is pure heresy.
Which is why the deeper the rabbit hole goes, and the more countries are Cyprus'ed, the greater the onslaught and attack against gold, silver, and other traditional and historic fallback currencies to what is increasingly pejoratively known simply as "paper."
http://www.zerohedge.com/news/2013-03-31...yprus-fits

[David Guyatt]

Before clicking on the below link, drink something strong and begin whistling Yankee Doodle Dandy. It might help also to stick your fingers in your ears and put on a pair of dark glasses. Really dark ones. Preferably ones you can't see through.

Health warning over.

Proceed

[David Guyatt]

Zerohedge has published a 4 page list of 132 names who pulled money out of Cyprus in the two weeks prior to confiscation - see HERE. His rhetorical question last week is "So who knew", he now can answer as everyone. That is to say, anyone who is anyone. Ordinary folks need not apply for that status.

[Peter Lemkin]

Zerohedge has published a 4 page list of 132 names who pulled money out of Cyprus in the two weeks prior to confiscation - see HERE. His rhetorical question last week is "So who knew", he now can answer as everyone. That is to say, anyone who is anyone. Ordinary folks need not apply for that status.

David, or anyone, I can't figure out why there are two columns of currency amounts....nor why some of the companies [which seem to have been pasted over on the photos] show zero sums withdrawn. Anyway, I do believe that those with the big bucks got no haircut, while the average person got scalped!...the usual!:mexican:

[David Guyatt]

Pete, go t Zerohedge and look at the list there. He details each column.

[Jan Klimkowski]

Zerohedge has published a 4 page list of 132 names who pulled money out of Cyprus in the two weeks prior to confiscation - see HERE. His rhetorical question last week is "So who knew", he now can answer as everyone. That is to say, anyone who is anyone. Ordinary folks need not apply for that status.

Historically, you had to be relatively curious to see the looting.

When I made the Great Dot.Con film in 2001, with an insider whistleblower and Ordinary Joe victim, with my crew and I getting thrown out of a Wall Street investment bank by security goons for good measure, the documentary attracted a smallish BBC2 audience and some buried away broadsheet coverage. Sixty Minutes told the same story, with some of my contributors, a year later. But still noone really noticed the looting unless they were curious.

What's going down in Cyprus is blatant looting and theft. In broad daylight.

It's not a pickpocket putting their hand in your jacket and stealing your wallet.

This is a thug with a machete walking up to you in the High Street saying "Give me your cash or you get this in the skull".

You can have an i-Pod, leather shoes and eat in a sushi bar and still be a serf.

It's time for the serfs to start revolting.

[David Guyatt]

Bloody ominous if you ask me. When Draghi and other Eurocrats start saying things like this and blame-storming, it's a good sign that this is exactly what will come to pass.

It also suggests that money is now streaming out of the Eurozone for safer ports in the far east.

"Cyprus is no template," he lied, oops sorry, said.

ECB says first Cyprus bailout plan 'not smart'

The initial plan to make small savers pay for the Cyprus bailout was "not smart", the European Central Bank (ECB) president has said.


ECB president Mario Draghi said a proposal to make "insured depositors" pay did not come from the ECB, the European Commission or the IMF.


He said the proposal only arose in talks with the Cypriot authorities, and was "swiftly corrected".


He was speaking after the ECB held eurozone interest rates at 0.75% again.


It was the ninth month in a row that they had been kept unchanged,


'Pecking order'
Cyprus eventually agreed a 10bn-euro (£8.5bn; $12.8bn) international bailout, which will see depositors with more than 100,000 euros lose some of their savings.


Accounts which have less than 100,000 euros in them will not be affected, but would have been under the original bailout proposals.


Speaking about the bailout, Mr Draghi said that the initial plan to impose a levy on all depositors "was not smart to say the least".


He said the ECB did not envisage savers covered by a guarantee - that is, those with up to 100,000 euros in savings - being forced to contribute towards the country's rescue plan.


"You have a pecking order, and here the insured depositors should be the very last category to be touched," said Mr Draghi. "The (European) Commission draft directive foresees exactly this."




How the first plan would have worked
[ATTACH=CONFIG]4536[/ATTACH]


Mr Draghi also told a news conference that the Cyprus bailout was not a blueprint for what would happen in further bailouts.


"Cyprus is no template," he said.


Mr Draghi was asked whether it would have been better for Cyprus to leave the euro.


"What was wrong with Cyprus's economy doesn't stop being wrong if they are outside the euro," he said.


"So, the fiscal budget stabilisation, consolidation, the restructuring of the banking system would be needed anyway, whether you are in or out. To be out doesn't preserve the country from the need for action."


He said that leaving the euro would entail a big risk for Cyprus, and that an exit from the currency could find the country having to pursue reforms "in a much more difficult environment".


The ECB president also said that the recent crisis in Cyprus had "reinforced the Governing Council's determination to support the euro".


Risks to growth
Despite continuing signs of economic weakness across the eurozone, the ECB has kept interest rates at the same level since July last year.




Mr Draghi said rates were on hold "for the time being" by consensus, which could open the door to a future cut.


He said he expected to see a gradual economic recovery in the second part of 2013.


However, he said that growth was "subject to downside risks". Risks included slow implementation of structural reforms by governments, or weak domestic demand.


"These factors have the potential to dampen the improvement in confidence and thereby delay the recovery," he added.


After his comments the euro fell to its lowest level in more than four months against the dollar, to $1.2745 - the weakest since mid-November.


However, Mr Draghi said that inflation would be contained in the medium term.


"Inflation rates have declined further as anticipated and price developments over the medium term should remain contained. Monetary and loan dynamics remain subdued.


"In the coming weeks, we will monitor very closely all the incoming information on economic and monetary developments, and assess the impact on the outlook for price stability."


Mr Draghi also reiterated that the ECB could not step into the gap left by a lack of action by eurozone governments to solve the region's debt crisis,


"We cannot replace lack of capital in the banking system or the lack of actions by governments. The most stimulative measures is to pay the arrears."


Japan stimulus
The latest indication of the state of the eurozone economy came on Thursday from financial information service Markit, which said the region's economic contraction had worsened last month.


Its closely-watched composite purchasing managers' index (PMI), which tracks both the services and manufacturing sectors, fell to 46.5 in March from 47.9 in February. Any number below 50 indicates contraction.


The European Central Bank was one of a number of major central banks meeting on Thursday:


the Bank of Japan unveiled a huge stimulus package aimed at spurring growth and ending years of falling prices in the country. The bank is increasing its purchase of government bonds by 50 trillion yen ($520bn; £350bn) a year
but the Bank of England also kept rates on hold. Rates stayed at 0.5% and there was no change to the BoE's stimulus programme of quantitative easing

[Jan Klimkowski]

Mr Draghi said rates were on hold "for the time being" by consensus, which could open the door to a future cut.


He said he expected to see a gradual economic recovery in the second part of 2013.


However, he said that growth was "subject to downside risks". Risks included slow implementation of structural reforms by governments, or weak domestic demand.


"These factors have the potential to dampen the improvement in confidence and thereby delay the recovery," he added.

Let's decode that.

Mr Draghi said rates were on hold "until it's no longer in the interests of the elites" by technocratic diktat. "We'd like a negative interest rate where ordinary folk pay bankers to look after their money. Banks should be encouraged to continue charging a huge margin on car loans, mortgages, pay day loans etc to boost banker profits and bonuses."


He said he was still drinking the Kool Aid and expected to see a gradual economic recovery in the second part of 2013.


However, he said that banker bonuses were "subject to downside risks". Risks included governments refusing to allow vulture privatisations at prices way below true value, and the obstinate refusal of ordinary folk to buy shit they didn't need.


"These factors have the potential to dampen the irrational rise in stock markets and thereby delay our Master Plan," he added.

[Lauren Johnson]

March 28, 2013, additional details to post #13

Confiscating the customer deposits in Cyprus banks, it seems, was not a one-off, desperate idea of a few Eurozone "troika" officials scrambling to salvage their balance sheets. A joint paper by the US Federal Deposit Insurance Corporation and the Bank of England dated December 10, 2012, shows that these plans have been long in the making; that they originated with the G20 Financial Stability Board in Basel, Switzerland -- discussed earlier [URL="http://www.webofdebt.com/articles/big_brother_basel.php"]here
[/URL]

and that the result will be to deliver clear title to the banks of depositor funds.

New Zealand has a similar directive, discussed in my last article here, indicating that this isn't just an emergency measure for troubled Eurozone countries.

New Zealand's Voxy reported on March 19[SUP]th[/SUP]:

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 . . . .

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.

Can They Do That?

Although few depositors realize it, legally the bank owns the depositor's funds as soon as they are put in the bank. Our money becomes the bank's, and we become unsecured creditors holding IOUs or promises to pay. (See here and here.) But until now the bank has been obligated to pay the money back on demand in the form of cash. Under the FDIC-BOE plan, our IOUs will be converted into "bank equity." The bank will get the money and we will get stock in the bank. With any luck we may be able to sell the stock to someone else, but when and at what price? Most people keep a deposit account so they can have ready cash to pay the bills.

The 15-page FDIC-BOE document is called "Resolving Globally Active, Systemically Important, Financial Institutions." It begins by explaining that the 2008 banking crisis has made it clear that some other way besides taxpayer bailouts is needed to maintain "financial stability." Evidently anticipating that the next financial collapse will be on a grander scale than either the taxpayers or Congress is willing to underwrite, the authors state:

An efficient path for returning the sound operations of the G-SIFI to the private sector would be provided by exchanging or converting a sufficient amount of the unsecured debt from the original creditors of the failed company [meaning the depositors] into equity [or stock]. In the U.S., the new equity would become capital in one or more newly formed operating entities. In the U.K., the same approach could be used, or the equity could be used to recapitalize the failing financial company itselfthus, the highest layer of surviving bailed-in creditors would become the owners of the resolved firm. In either country, the new equity holders would take on the corresponding risk of being shareholders in a financial institution.

No exception is indicated for "insured deposits" in the U.S., meaning those under $250,000, the deposits we thought were protected by FDIC insurance. This can hardly be an oversight, since it is the FDIC that is issuing the directive. The FDIC is an insurance company funded by premiums paid by private banks. The directive is called a "resolution process," defined elsewhere as a plan that "would be triggered in the event of the failure of an insurer . . . ." The only mention of "insured deposits" is in connection with existing UK legislation, which the FDIC-BOE directive goes on to say is inadequate, implying that it needs to be modified or overridden.

An Imminent Risk

If our IOUs are converted to bank stock, they will no longer be subject to insurance protection but will be "at risk" and vulnerable to being wiped out, just as the Lehman Brothers shareholders were in 2008. That this dire scenario could actually materialize was underscored by Yves Smith in a March 19th post titled When You Weren't Looking, Democrat Bank Stooges Launch Bills to Permit Bailouts, Deregulate Derivatives. She writes:

In the US, depositors have actually been put in a worse position than Cyprus deposit-holders, at least if they are at the big banks that play in the derivatives casino. The regulators have turned a blind eye as banks use their depositaries to fund derivatives exposures. And as bad as that is, the depositors, unlike their Cypriot confreres, aren't even senior creditors. Remember Lehman? When the investment bank failed, unsecured creditors (and remember, depositors are unsecured creditors) got eight cents on the dollar. One big reason was that derivatives counterparties require collateral for any exposures, meaning they are secured creditors. The 2005 bankruptcy reforms made derivatives counterparties senior to unsecured lenders.

One might wonder why the posting of collateral by a derivative counterparty, at some percentage of full exposure, makes the creditor "secured," while the depositor who puts up 100 cents on the dollar is "unsecured." But moving on Smith writes:

Lehman had only two itty bitty banking subsidiaries, and to my knowledge, was not gathering retail deposits. But as readers may recall, Bank of America moved most of its derivatives from its Merrill Lynch operation [to] its depositary in late 2011.

Its "depositary" is the arm of the bank that takes deposits; and at B of A, that means lots and lots of deposits. The deposits are now subject to being wiped out by a major derivatives loss. How bad could that be? Smith quotes Bloomberg:

. . . Bank of America's holding company . . . held almost $75 trillion of derivatives at the end of June . . . .
That compares with JPMorgan's deposit-taking entity, JPMorgan Chase Bank NA, which contained 99 percent of the New York-based firm's $79 trillion of notional derivatives, the OCC data show.

$75 trillion and $79 trillion in derivatives! These two mega-banks alone hold more in notional derivatives each than the entire global GDP (at $70 trillion). The "notional value" of derivatives is not the same as cash at risk, but according to a cross-post on Smith's site:
By at least one estimate, in 2010 there was a total of $12 trillion in cash tied up (at risk) in derivatives . . . .
$12 trillion is close to the US GDP. Smith goes on:

. . . Remember the effect of the 2005 bankruptcy law revisions: derivatives counterparties are first in line, they get to grab assets first and leave everyone else to scramble for crumbs. . . . Lehman failed over a weekend after JP Morgan grabbed collateral.

But it's even worse than that. During the savings & loan crisis, the FDIC did not have enough in deposit insurance receipts to pay for the Resolution Trust Corporation wind-down vehicle. It had to get more funding from Congress. This move paves the way for another TARP-style shakedown of taxpayers, this time to save depositors.

Perhaps, but Congress has already been burned and is liable to balk a second time. Section 716 of the Dodd-Frank Act specifically prohibits public support for speculative derivatives activities. And in the Eurozone, while the European Stability Mechanism committed Eurozone countries to bail out failed banks, they are apparently having second thoughts there as well. On March 25[SUP]th[/SUP], Dutch Finance Minister Jeroen Dijsselbloem, who played a leading role in imposing the deposit confiscation plan on Cyprus, told reporters that it would be the template for any future bank bailouts, and that "the aim is for the ESM never to have to be used."

That explains the need for the FDIC-BOE resolution. If the anticipated enabling legislation is passed, the FDIC will no longer need to protect depositor funds; it can just confiscate them.

Worse Than a Tax

An FDIC confiscation of deposits to recapitalize the banks is far different from a simple tax on taxpayers to pay government expenses. The government's debt is at least arguably the people's debt, since the government is there to provide services for the people. But when the banks get into trouble with their derivative schemes, they are not serving depositors, who are not getting a cut of the profits. Taking depositor funds is simply theft.

What should be done is to raise FDIC insurance premiums and make the banks pay to keep their depositors whole, but premiums are already high; and the FDIC, like other government regulatory agencies, is subject to regulatory capture. Deposit insurance has failed, and so has the private banking system that has depended on it for the trust that makes banking work.

The Cyprus haircut on depositors was called a "wealth tax" and was written off by commentators as "deserved," because much of the money in Cypriot accounts belongs to foreign oligarchs, tax dodgers and money launderers. But if that template is applied in the US, it will be a tax on the poor and middle class. Wealthy Americans don't keep most of their money in bank accounts. They keep it in the stock market, in real estate, in over-the-counter derivatives, in gold and silver, and so forth.

Are you safe, then, if your money is in gold and silver? Apparently not if it's stored in a safety deposit box in the bank. Homeland Security has reportedly told banks that it has authority to seize the contents of safety deposit boxes without a warrant when it's a matter of "national security," which a major bank crisis no doubt will be.

The Swedish Alternative: Nationalize the Banks

Another alternative was considered but rejected by President Obama in 2009: nationalize mega-banks that fail. In a February 2009 article titled "Are Uninsured Bank Depositors in Danger?", Felix Salmon discussed a newsletter by Asia-based investment strategist Christopher Wood, in which Wood wrote:

It is . . . amazing that Obama does not understand the political appeal of the nationalization option. . . . [D]espite this latest setback nationalization of the banks is coming sooner or later because the realities of the situation will demand it. The result will be shareholders wiped out and bondholders forced to take debt-for-equity swaps, if not hopefully depositors.

On whether depositors could indeed be forced to become equity holders, Salmon commented:

It's worth remembering that depositors are unsecured creditors of any bank; usually, indeed, they're by far the largest class of unsecured creditors.

President Obama acknowledged that bank nationalization had worked in Sweden, and that the course pursued by the US Fed had not worked in Japan, which wound up instead in a "lost decade." But Obama opted for the Japanese approach because, according to Ed Harrison, "Americans will not tolerate nationalization."

But that was four years ago. When Americans realize that the alternative is to have their ready cash transformed into "bank stock" of questionable marketability, moving failed mega-banks into the public sector may start to have more appeal.

http://webofdebt.wordpress.com/2013/03/2...epositors/

[Magda Hassan]

CEO Of Italy's Largest Bank Says Haircuts Of Uninsured Depositors "Acceptable", Should Become A Template

Submitted by Tyler Durden on 04/04/2013 12:59 -0400




While the head of the ECB and his assorted kitchen sinks scramble to explain how Diesel-BOOM was horribly misunderstood when saying that depositor impairment may and will be the template for future European bank "resolution" (as should have been the case from Day 1), the CEO of Italy's largest bank appears to have missed the memo. As Bloomberg reports, according to the chief executive Federico Ghizzoni, "uninsured deposits could be used in future bank failures provided global rulemakers agree on a common approach." Or failing that, because if Cyprus taught us anything is that Europe will never have a common approach on anything, just use deposits as impairable liabilities, period, once the day of reckoning for Non-Performing Loans comes and these are forced to be remarked to reality, just as happened in Cyprus. One can only hope that uninsured deposits do not represent a substantial portion of the bank's balance sheet because the CEO basically just told them they are next if when risk comes back to the Eurozone with a vengeance. Especially since as Mario Draghi was so helpful in pointing out, "there is no Plan B."
To wit:

Cutting large deposits in failing banks, along with other liabilities such as bonds, to offset losses is acceptable as long as small savers' funds remain protected, Ghizzoni told reporters in Vienna late yesterday. The European Union has to introduce identical rules in all of its member states and ideally those rules would be coordinated globally, he said.

In fact, to the Italian, deposit impairment is perfectly ok as long as "everyone does it" - in other words, if it does become the template the Dutch finance minister already said it is, then all is well.

Including deposits "is acceptable if it becomes a European solution," said Ghizzoni, 57. "What we cannot accept is differentiation country by country inside the same area. I would strongly suggest to make this decision not only within Europe but within the Basel Committee, where all countries are represented. Otherwise we would open the market for arbitrage."

Ghizzoni said deposits should only be included when bonds aren't sufficient, and those below the guaranteed level of 100,000 euros should be off limits. While he would prefer not to touch them at all, including deposits in a global plan was a acceptable solution, he said.

"The deposit issue is very sensitive," he said. "It will become part of the discussion for the bail-in instruments related to the resolution plans of banks. I hope it will be addressed carefully and with clarity."

Which makes perfect sense: where will those "evil, tax-evading oligarchs" go if everyone in the world says that no uninsured deposits anywhere are safe any more.
Well, perhaps Singapore? Or the Caymans? Or Lichtenstein? Or Switzerland?
Yes, there are tax havens where the banking sector is not woefully insolvent, and the rich have ways of finding out where these places are. And remember: Italy does not have capital controls to prevent the outflow of deposits. At least not yet.
But what it also means is that for a bank like UniCredit with nearly €1 trillion in assets, the liability side of its balance sheet is about to get far smaller, forcing it to readjust its balance sheet i.e., pump more equity to offset the loss of unsecured funding liabilities. One wonders just how this will happen when no European bank has made any real profits in the past several years, as for raising equity capital... forget it.
More importantly, as the chart below shows, deposits just happen to be a primary source of funding for the Italian megabank. Perhaps trying to spook them is not the smartest idea, especially if UniCredit also plans on one day "resolving" its non-performing loans (15% of total assets? 20%? 25%? 30%?) and is forced to "impair" liabilities from most junior all the way to deposits (and higher).

Ghizzoni's conclusion is perfectly expected: allay any fears that the Monte Paschi specter of depositor outflows has shifted to UniCredit:

Ghizzoni said he had been "afraid" of his clients' reaction to the measures in the Cyprus rescue and asked for monitoring of deposit flows in all 22 European countries -- stretching from Italy, Germany and Austria as far as Russia and Turkey -- where his Milan-based bank operates. It didn't find any loss of deposits, he said.

"Really, we were afraid, we started to monitor on a daily basis the flow of deposits in different countries," he said. "Maybe I'm disappointing you, but in reality we had no reaction so far from customers."

Maybe the CEO should revisit this issue in a few days to a week, once the bank's clients are fully aware its CEO is perfectly happy to sacrifice the whales in order to preserve his bank's viability. Perhaps then customers will have a slightly different reaction...
http://www.zerohedge.com/news/2013-04-04...ld-become-