On the weekend of November 16th, the G20 leaders whisked into Brisbane, posed for their photo ops, approved some proposals, made a show of roundly disapproving of Russian President Vladimir Putin, and whisked out again. It was all so fast, they may not have known what they were endorsing when they rubber-stamped the Financial Stability Board’s “Adequacy of Loss-Absorbing Capacity of Global Systemically Important Banks in Resolution,” which completely changes the rules of banking.
Russell Napier, writing in ZeroHedge, called it “the day money died.” In any case, it may have been the day deposits died as money. Unlike coins and paper bills, which cannot be written down or given a “haircut,” says Napier, deposits are now “just part of commercial banks’ capital structure.” That means they can be “bailed in” or confiscated to save the megabanks from derivative bets gone wrong.
Rather than reining in the massive and risky derivatives casino, the new rules prioritize the payment of banks’ derivatives obligations to each other, ahead of everyone else. That includes not only depositors, public and private, but the pension funds that are the target market for the latest bail-in play, called “bail-inable” bonds.
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The Latest Twist (in the USA): Putting Pensions at Risk with “Bail-Inable” Bonds
First they came for our tax dollars. When governments declared “no more bailouts,” they came for our deposits. When there was a public outcry against that, the FSB came up with a “buffer” of securities to be sacrificed before deposits in a bankruptcy. In the latest rendition of its bail-in scheme, TBTF banks are required to keep a buffer equal to 16-20% of their risk-weighted assets in the form of equity or bonds convertible to equity in the event of insolvency.
Called “contingent capital bonds”, “bail-inable bonds” or “bail-in bonds,” these securities say in the fine print that the bondholders agree contractually (rather than being forced statutorily) that if certain conditions occur (notably the bank’s insolvency), the lender’s money will be turned into bank capital.
However, even 20% of risk-weighted assets may not be enough to prop up a megabank in a major derivatives collapse. And we the people are still the target market for these bonds, this time through our pension funds.
..........................................................................................................................................then onto OZ - - - - - - -
To the Australian Parliament:
Don’t seize our bank accounts—pass Glass-Steagall!
http://cecaust.com.au/main.asp?id=bail-in-ad.html
We, the undersigned, are unalterably opposed to the legislation now being drafted to enable the “bail-in” (seizure) of Australian bank deposits as happened in Cyprus in March of this year. The stated purpose of such legislation, in Australia and internationally, is to save the “Too Big To Fail” megabanks whose unbridled speculation has caused the present financial crisis in the first place. But, as in Cyprus, such legislation will plunge this country into mass misery and even worse.
There is overwhelming evidence that such legislation is indeed being planned for Australia, as in a 15 April report of the Financial Stability Board (FSB) of the Swiss-based Bank for International Settlements which is overseeing the global bail-in process; that report states flatly on page 5 that such legislation is “in-train” for Australia.1 The FSB and the IMF have classified Australia’s “Big Four” banks as “Systemically Important Financial Institutions”, which must be saved at all costs.
There is overwhelming evidence that such legislation is indeed being planned for Australia, as in a 15 April report of the Financial Stability Board (FSB) of the Swiss-based Bank for International Settlements which is overseeing the global bail-in process; that report states flatly on page 5 that such legislation is “in-train” for Australia.1 The FSB and the IMF have classified Australia’s “Big Four” banks as “Systemically Important Financial Institutions”, which must be saved at all costs.
The Solution
Instead of “bail-in”, the Australian Parliament must pass legislation modelled upon the U.S. Glass-Steagall law which functioned so successfully from its passage in 1933 until its repeal in 1999, which separated commercial banking from investment banking. Without such a separation, banks are free to speculate with customers’ deposits, which, for instance, is why Australian banks now hold some $21.5 trillion in highly risky derivatives. Numerous prominent individuals—even from the City of London and Wall Street—have spoken out to urge the reinstatement of Glass-Steagall, and legislation to do so has been introduced into both the U.S. House of Representatives and Senate, as well as in numerous other countries.
