Era Of Depositor Bail-In Cometh (Part 1)
GoldCore
GoldSeek.com
Wednesday, 4 December 2013
Era Of Bond Holder Bailouts Ending – That Of Depositor Bail-In Cometh (Part 1)
The era of bondholder bailouts is ending and that of depositor bail-in is coming.
The changing financial landscape post crisis poses challenges to savers and investors globally. It is important we consider how savings and investments can be protected.
Bail-ins are a risk in the coming years and yet there is a lack of appreciation of this risk as there was a lack of appreciation of the risks posed by property bubbles and the global debt crisis.
This research note is therefore timely and welcome as there is a lack of research regarding a bailin and bail-ins and the ramifications thereof.
It will take a number of years for the final configuration of the new financial order to become clear. This means that there are difficulties inherent in selecting appropriate investments when the ultimate outcome is unclear. Apart from that, what we do know at present is that there are straws in the wind that should concern savers.
The approach taken with failing banks in Europe, to in one form or another socialise the debts across taxpayers created a so called doom loop. As the banks got weaker more and more of their debts were passed to already strained sovereign treasuries, weakening them and making it more difficult for them to intervene early in stressed banks. The realisation that, with banks which were multiples in size of the sovereign regulating them, this could not go on was slow to emerge but it has now done so.
In an as yet to be determined but medium term future, banks which face losses will have to act in an avowedly capitalistic manner. First reserves and equity, then senior, then junior debt will be used as the risk capital in order to fill these debt holes. What is new is that if losses continue, after burning through this capital, rather than the state, it is depositors who will be in play.
The Rest…HERE
