EU regulators are getting ready to shaft people to keep banks afloat.
Do you have any firm idea how safe your bank is? Are you specifically aware of their exposure to derivatives-risk based on interest rates, and bets on European banks, companies, and debt? Are you aware banks invest your deposits in such risky ventures in order to profit from your cash? Yep, it’s in the fine-print virtually none of us reads when we open an account, hidden behind obscure words like “rehypothecation.”
From Reuters: “EU regulators tell 11 countries to adopt bank bail-in rules.”
The European Commission on Thursday gave France, Italy and nine other EU countries two months to adopt new EU rules on propping up failed banks or face legal action.
The rules, known as the bank recovery and resolution directive (BRRD), seek to shield taxpayers from having to bail out troubled lenders, forcing creditors and shareholders to contribute to the rescue in a process known as “bail-in”.
The Commission drafted the rules in response to the financial crisis which started in 2008, giving the 28 countries in the European Union until the end of last year to apply them.
It said Bulgaria, the Czech Republic, France, Italy, Lithuania, Luxembourg, the Netherlands, Malta, Poland, Romania and Sweden had yet to fall in line.
“If they don’t comply within two months, the Commission may decide to refer them to the EU Court of Justice,” the EU executive said in a statement, referring to Europe’s highest court based in Luxembourg.
Legally, you are an “unsecured creditor” in the event your bank goes belly-up. And as with what happened in Cyprus—the first Western test case—if your bank fails government will now seize your deposits to help pay off more highly-ranked creditors.
As this report makes clear, European banks are closing the circle for the next time one of them fails. I repeat: it’s already a done deal in the United States. As long as you know your personal exposure, carry on. FDIC guarantees won’t mean a darn thing when the coming “big one” roils the financial markets.
Oh, by the way: It probably won’t happen, but Greek default could come as soon as Friday. Smile