WASHINGTON – Banks “too big to fail,” or TBTFs, already have
authority in the United States to impose an unlimited
Cyprus-style “bail-in” that confiscates the savings of
depositors, stockholders and shareholders in lieu of a federal
taxpayer bailout.
The Cyprus-style bail-in for banks occurred last year when
the Cypriot government decided to take all uninsured deposits
above 100,000 euros to apply to recapitalizing the island’s
failing banks.
WND recently detailed the initial impact that such action
caused depositors on that island country.
Such a bail-in is considered to be the “new collapse
template for the Western banking system,” according to
financial expert James Sinclair.
This template now is being applied in the United States
on bank depositors’ savings accounts and on shareholders and
stockholders, especially of banks said to be too big to
fail.
These TBTSs inclue Citigroup, Bank of America and JP
Morgan Chase.
“It’s now legal for a big bank to confiscate your money
without warning and at their discretion,” Sinclair said.
Similar action is being undertaken in Europe following
the example of Cyprus.
As WND recently pointed out, finance ministers of the
27-member European Union in June had approved forcing
bondholders, shareholders and large depositors with more
than 100,000 euros in their accounts to make the financial
sacrifice before turning to the government for help with
taxpayer funds.
That authority derives from a little-noticed 15-page
December 10, 2012, joint resolution paper from the Federal
Deposit Insurance Corporation, or FDIC, and the Bank of
England, or BOE.
FDIC and BOE decided to issue this joint authority to
make sure that financial institutions operating in their
respective countries will operate “unaffected, thereby
minimizing risks to cross-border implementation.”
“The FDIC and the Bank of England have developed
resolution strategies that take control of the failed
company at the top of the group, impose losses on
shareholders and unsecured creditors – not on taxpayers –
and remove top management and hold them accountable for
their actions,” the FDIC/BOE paper said.
The FDIC/BOE paper points out that its authority to act
in such a way is buried in the Dodd-Frank Wall Street Reform
and Consumer Protection Act of 2010 which was passed in
response to the 2009 financial crisis.
Their purpose is to “ensure continuity of all critical
services performed by the operating firm(s), thereby
reducing risks to financial stability.
“The financial crisis that began in 2007 has driven home
the importance of an orderly resolution process for globally
active systemically important financial institutions,” the
joint paper said.
The paper said that losses would be assigned to
shareholders and unsecured creditors of the holding company,
and “transfer sound operating subsidiaries to a new solvent
entity or entities.”
“The unsecured debt holders can expect that their claims
would be written down to reflect any losses that
shareholders cannot cover, with some converted partly into
equity in order to provide sufficient capital to return the
sound businesses of the G-SIFI (globally active,
systemically important, financial institutions) to private
sector operation,” the joint document said..
“Sound subsidiaries (domestic and foreign) would be kept
open and operating, thereby limiting contagion effects and
cross-border complications,” it said.
The joint resolution said that large financial
institutions can resolve their recapitalization needs
through depositor wealth confiscation that can be pursued in
the case of a systemically important institution such as the
Bank of America, JP Morgan and Goldman Sachs, to name a few.
The irony is that the FDIC is not sufficiently
capitalized to sustain FDIC-insured deposits for any major
bail-in, Sinclair said.
“FDIC will not pay in cash, but will rather pay in
special issue U.S. Treasury instruments that will be salable
only over a five-year period,” he said.
Sinclair said that the risk of implementing bail-ins will
be much higher in 2013 and 2014 than it was at the height of
the 2009 financial crisis.
He said that bail-ins don’t even require a crisis to
occur and can surface one bank at a time and spread out over
years.
As a consequence, Sinclair said that “too big to fail is
no longer valid at all.”
He said that the major concern is over deposits above
insurance levels in banks too big to fail.
“Those deposits are directly in harm’s way,” Sinclair
said. “The next situation is your retirement account as
targets for the IMF and governments to secure as fonts of
capital into which to place sovereign paper.”
FDIC insures deposits up to $250,000, but Sinclair said
that the FDIC is not capitalized to insure this amount of
deposit, especially with many depositors.
In addition, it may be questionable whether the insured
can collect on multiple FDIC insured accounts of $250,000.
“The idea that you can have multiple FDIC insured account
at $250,000 and collect on all of them is a pure gamble on
the goodness of the government’s interpretation,” Sinclair
said.
“The idea that the FDIC or SIPC (Securities Investor
Protection Corporation) will pay in cash is total madness in
a systemic crisis,” he said. “They will pay in special issue
U.S. Treasury instruments that will be salable only over a
specific amount of years, more than likely five years.”
Read more at
http://www.wnd.com/2013/10/u-s-banks-already-can-take-your-money/#2kbMB00FeBMB1yD5.99