- Cyprus and the government’s actions there to seize depositor funds to rescue a failing economy and its banks wasn’t a one-off.
- This same plan is wending it way through the parliament here in New Zealand under the guidance of the conservative National Government. And, just as in the article, below, about Canada’s movements in the direction, the New Zealand government is doing their very best to deflect any and all questions about whether or not money would or would not be taken from depositor accounts of a bank to cover the shortfalls if that bank failed.
- No one in New Zealand has explained why the bank’s officers should not first be stripped of all their assets before anyone should think of going after the bank’s depositors.
- And no one has explained why, if it is the government’s rightful roll to regulate banks to prevent such things, why the government should not be culpable and why, if they were, they should not spread the burden of their malfeasance across the entire tax-payer base of the country to more fairly spread the load.
- And finally no one has explained why of these three; the bank’s officers, the government and the bank’s depositors, why the depositors (who would would obviously know the least about the bank’s stability) should be the ones tasked with paying the penalty for a bank’s failure.
- Yes, God damn it, the people DO want to know the answers to these questions.
Canadian Federal government looking at ‘Cyprus solution’
Buried deep in last month’s federal budget is an ambiguously worded section that has roiled parts of the financial world but has so far been largely ignored by the mainstream media.
It boils down to this: Ottawa is contemplating the possibility of a Canadian bank failure — and the same sort of pitiless prescription that was just imposed in Cyprus.
Meaning no bailout by taxpayers, but rather a “bail-in” that would force the bank’s creditors to absorb the staggering losses that such an event would inevitably entail.
If that sounds sobering, it should. While officials in Ottawa are playing down the possibility of a raid on the bank accounts of ordinary Canadians, they chose not to include that guarantee in the budget language.
Canadians tend to believe their banks are safer and more backstopped than elsewhere in the world. The federal government enthusiastically promotes the notion, and loves to take credit for it.
It may well be true, even if Canada’s six-bank oligopoly isn’t terribly competitive, at least in comparison to the far more diverse American banking universe.
But in the ever-more insecure world that has unfolded since the financial meltdown of 2008, it is also increasingly clear that nothing is safe anymore, not even blue-chip bank stocks and bonds or even, in the case of the Cyprus bail-in, private bank accounts.
And now, Canada is making a bail-in official government policy, too.
“The government proposes to implement a bail-in regime … designed to ensure that, in the unlikely event that a systemically important bank depletes its capital, the bank can be recapitalized and returned to viability,” says Finance Minister Jim Flaherty’s March 21 budget, on page 144.
That would be done, the document says, through the rapid conversion of “certain bank liabilities.”
Ottawa’s budget document leaves the definition of “certain liabilities” to the reader’s imagination.
There has been very little public debate about the plan to date, but Finance Department officials and the banks protest it should never be taken to mean small personal deposits would be seized.
Deposits are insured by the Canadian Deposit Insurance Corporation, up to $100,000, and the inviolability of that insurance is key to maintaining the crucial public trust.
“The risk of the Canadian government not honouring its insurance on deposits is as close to zero as you can get,” says Craig Alexander, chief economist at TD Canada Trust.
As the Cyprus meltdown proceeded, it became clear that Europe’s finance ministers and central banks, encouraged by the International Monetary Fund, were not only willing to freeze and seize uninsured deposits over 100,000 euros, they were also initially willing to cancel deposit insurance and go after small depositors, too.
In the end, the plan was rewritten, and insured deposits were protected. But the signal had been sent: The Europeans and the IMF had been prepared to do the unthinkable.
Holland’s finance minister then declared that bail-ins would be the template for all future bank rescues in Europe, and that he could not rule out seizure of deposits elsewhere.