European Union Likely to ‘Bail In’ Large Depositors
Tuesday, 14 May 2013
Gold fell $11.90 or -0.82% yesterday to $1,431.40/oz and silver finished -0.8%.
The European Union will today meet to discuss and move forward the proposal to ‘bail-in’ depositors with savings of over €100,000 as part of future bank wind-downs. It now looks likely that the EU is going to take unprecedented steps to sequester monies from its citizens in the event of future bank failures.
Only three months ago a €10 billion bailout was announced by the European Commission (EC), European Central Bank (ECB) and International Monetary Fund (IMF) in return for Cyprus agreeing to close its second largest bank, the Cyprus Popular Bank and in the process levying all uninsured deposits and up to 40% of uninsured deposits in the Bank of Cyprus. All insured deposits of €100,000 or less were not included as part of what we now know to be a ‘bail in.’
As it is the Irish that currently hold the EU presidency, this key legislation is being proposed and presented by Ireland’s finance minister, Michael Noonan. Walking a tightrope, Noonan and his team have to negotiate the significant differences that exist between member states. Some states have not ruled out the possibility that insured deposits would also be included in the ‘bail-in,’ a proposition rendered senseless considering that all deposits under €100,000 are insured.
A key development prior to today’s EU finance ministers meeting is that uninsured deposits of over €100,000 would be ‘bailed in’ in a bank that is resolved – the successful restructuring of an institution which ensures the continuity of its essential functions, preserves financial stability and restores the viability of all or part of that institution. Where the resolution is unsuccessful and the bank is wound down, then it is proposed that depositors would rank higher than other creditors.