Guest Post: “Regarding Bank Bail-Ins”, by James Gibson

by James Gibson, TF Metals Report:

Longtime Turdite James Gibson is author of the great book, “From West To East”. He also just sent us this terrific new article which discusses the history of the Cypriot bank bail-in of 2012 and warns of future bail-ins to come.

REGARDING BANK BAIL-INS,

by James Gibson

Most TFMR subscribers probably agree with me that the current international financial system is to all intents and purposes broken, and it is being kept afloat by increasingly egregious interventions and manipulations by central banks and major money centre banks. The risk of bank bail-ins seems to be rising by the month, so I thought an article on this subject might be of interest.

This topic is close to my heart, as I live in Cyprus and personally witnessed and lived through the experience of the first officially sanctioned G20 ‘bank bail-in’ process in 2013.

It became clear to me in late 2012 that the Cypriot banking sector had dug itself a huge financial hole, well beyond the national government’s financial ability to resolve, and that bank depositors’ money was very much at risk.

At every opportunity, I tried to warn friends and acquaintances of the dangers, and urged them to reduce their Cypriot bank deposits to a minimum as soon as practical. Most people either laughed off my concerns, or their eyes glazed over with total disbelief, and/or they thought I was a certifiably crazy person.

In the end, I managed to persuade just three people to take action, which they did literally in the last few days before the official declaration of a ‘bank holiday.’ They collectively saved over $1.5 million. It would be a masterly understatement to say that that those three people, and their families, were very relieved and happy that they had managed to avoid the financial consequences of the bail-in. It is interesting that I cannot recollect even one of those people that ignored my warnings ever approaching me after the bail-in, to express regret that they had refused to heed my warning. As the old adage goes: there is nothing stranger than folk.

When the bank holiday was declared, and the final bail-in terms agreed and made known, the depositors’ reactions were pretty uniform, and understandably included a deep sense of outrage, and stunned disbelief that their bank deposits could be legally seized in such an arbitrary manner.

This sense of outrage was exacerbated by the fact that the banks had regularly been declaring healthy profits in the years leading up to the bail-in, and there was little to indicate to those unfamiliar with the financial system, that there was any cause for concern.

What follows is brief extract from my book:
FROM WEST TO EAST – The Greatest Transfer of Power and Wealth in the History of Mankind

Quote
The financial and economic crisis of 2008 resulted in many major banks requiring urgent increases in capital in order to avoid bankruptcy. In the highly stressed atmosphere of the crisis conditions existing at that time, coupled with the lack of any protocol to follow in such extraordinary circumstances, the banks in question were exceptionally provided with increased capital by their respective governments at the expense of the taxpayer.

When the crisis conditions calmed down somewhat in 2009, the G20 decided that a suitable protocol for handling future bank crises must be drawn up and agreed. In April 2009 the Financial Stability Board (FSB) was established as a successor to the Financial Stability Forum (FSF); it included all G20 countries, FSF members, and the European Commission. The FSB was based in Basel, Switzerland, the home of the BIS (Bank for International Settlements, the central bank of central banks).
The chairman appointed to head up the FSB was Mark Carney, who at the time was the governor of the Bank of Canada (Canada’s central bank). The FSB was tasked with promoting financial stability within the global financial system and making suitable recommendations to the G20 in that regard.

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