Bank Bail-Ins Pose Risks To Retail Investors and Depositors

Thursday, May 19, 2016
By Paul Martin

By: GoldCore
Thursday, 19 May 2016

Bank bail-ins pose risks to retail investors and especially savers throughout the western world. The new bail-in rules have been made operational since the beginning of this year in the EU and in many other countries, yet the risks and ramifications of bail ins have been largely ignored in most of the media.

The Financial Times covers bail-ins today with a focus on the risk to investors while continuing to ignore that posed to savers and depositors including small and medium size enterprises.

From the FT:

When Ignazio Visco, governor of the Bank of Italy, spoke in Florence this month, his focus turned to regulation of bail-ins.

At a sensitive moment for Italian lenders, whose shares had collapsed over recent months, the governor chose to address what he called “regulatory uncertainty” in the wake of new European wide rules for failing banks.

“We must strike the right balance,” he said. “We should not rule out the possibility of temporary public support in the event of systemic bank crises, when the use of a bail­in is not sufficient.”

Taxpayer support for banks, however, was precisely what the new European rules introduced at the start of this year aimed to avoid. To protect taxpayers, investors in bank bonds — mostly untouched during the bailouts of the last crisis — now face losses, or “bail­ins”.

In a March paper, German academics warned of potential retail holdings of “subordinated debt”. The paper argued that existing EU regulation “insufficiently addresses mis-selling of bail-in instruments” and pushed for more clarity on exactly who holds the affected debt.

“Bail-in theoretically is a very nice concept but the legal issues are really very big,” says Martin R Götz, professor at Goethe university Frankfurt and a co-author of the paper. “It’s very important to sort these things out because subordinated debt holders, if they are retail investors, are voters.”

The Rest…HERE

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