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Ft Urges All European Countries To Have Contingency Plans For Spreading Bank Runs

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Europe heads back into the storm

Published: November 17 2010 19:07

Only months after congratulating itself on a narrow escape, the eurozone is again hurtling back toward contagious defaults. Its fumbling approach to the explosive instability of the Irish banking system leaves little hope that the other ticking bombs with which Europe’s economies are riddled are going to be disarmed in time.

Ireland’s basic problem is that it now has to choose between its own sovereign solvency and the solvency of its banks. Other European countries – in and out of the eurozone – may soon face the same choice. In such a world, keeping banks afloat with public capital risks sinking the sovereign – and with it, the whole banking system.

Dublin has cash to get by for another half a year. There is something absurd about pressuring Ireland to borrow money from Europe in order to calm markets enough to lower yields for Spain and Portugal, whose refinancing needs are more acute. If this were the only consideration, the sovereigns most immediately at risk should be told to tap the European financial stability facility.

But the most urgent problem is not the solvency of the Irish state; it is the solvency of the Irish banking system (though Dublin has spared no effort to assimilate the latter to the former). If Irish banks collapse – and if one falls it will not fall alone – it may well trigger bank failures across a continent that remains full of institutions whose earlier stress tests were remarkably stressless. Right now, this kind of contagion should scare Europe’s leaders even more than the spectre of sovereign defaults.

Irish banks have been so hollowed out by the real estate crash that most are only standing thanks to the injection of €50bn of taxpayer-funded capital – about a third of national output. More losses are likely. So the banks find it increasingly hard to fund themselves anywhere else than the European Central Bank’s liquidity facilities. ECB annoyance at lending in the last resort – that is to say, at doing its job – has played a part in the eurozone’s ganging up on Dublin.

Yet there is no doubt, and no dispute, that the Irish banking system needs to be recapitalised. Ireland is making important but overlooked progress – its external sector is posting large trade surpluses and a robust return of foreign direct investment, and the population is grittily putting up with an internal devaluation. This is all being undone by the cold hands of zombie banks squeezing credit out of the domestic economy.

Saving the banking system, however, is not the same as bailing out extant institutions; nor should taxpayers give up even more of their blood to the walking dead. Yet this is what Ireland is being asked to do – borrow money from the EFSF to raise the banks’ equity. Doing so would be an insult to the Irish people (whose incomes will be mortgaged to pay the loan back) and a gratuitous one at that: it defies logic to claim that adding to Dublin’s debt will seduce markets back to Irish sovereign bonds.

So Ireland – and Europe – must confront the prospect of an inevitable string of bank restructurings. Giving away more capital now will weaken states’ ability to deal with the problem when there is no more time to be bought.

Preparations must now be made for dealing with a run on banks by depositors or wholesale lenders. Countries that have yet to put in place special insolvency regimes – Ireland included – must do so without delay. They must allow states swiftly to take control of banks so as to keep operations going during a panic and quickly allocate losses by forcibly restructuring wholesale debt or converting it into equity. Paradoxically, Ireland’s reliance on wholesale funding may make it easier to force losses on creditors.

No one can be relaxed about the chaos such a process may cause. But it can be minimised by putting in place the technocratic capacity; by preparing large, well-capitalised banks for quickly taking over operations whose disruption is most damaging, such as small business banking and deposit-taking; and by readying the large funds needed for transitional outlays and liquidity needs – with borrowing from the EFSF if necessary.

Ireland has little time to lose. Overall deposits are shrinking. Europe must prepare for a run on the Irish banks spreading, with deposits fleeing not to financial institutions with solid assets but to those with solid sovereigns: Berlin may soon face calls for support.

Europe does not yet seem willing to give up a diabolical bargain that has core states lend to peripheral ones so that they can support their banks, all to save financial institutions in the core from losses. This game of bail-outs on the sly cannot be sustained for much longer.

http://www.ft.com/cms/s/0/aabdc6d6-f285-11df-a2f3-00144feab49a.html

Getting close now, i'll be making a very calm withdrawal tomorrow

Edited by athom

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Getting close now, i'll be making a very calm withdrawal tomorrow

Yep - ive been very quitely taking money out --------- and incase you ask ive put it into the .govs ISA ------ think therell be the last to go if it does blow up, and there isa is as competative without all that introductory rate crap. ----- will be fully out by the 7th, if not the fourth.

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Yep - ive been very quitely taking money out --------- and incase you ask ive put it into the .govs ISA ------ think therell be the last to go if it does blow up, and there isa is as competative without all that introductory rate crap. ----- will be fully out by the 7th, if not the fourth.

I'll be taking some thousands out tomorrow and asking for it in 20s "because the person i'm buying the car from doesn't want any 50s" I'm not going to test my right to my own money, i just want the cash. Do you think there will be a problem with that plan?

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I'll be taking some thousands out tomorrow and asking for it in 20s "because the person i'm buying the car from doesn't want any 50s" I'm not going to test my right to my own money, i just want the cash. Do you think there will be a problem with that plan?

who knows ---- my advice is do it quitely --- take from that what you will

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I'll be taking some thousands out tomorrow and asking for it in 20s "because the person i'm buying the car from doesn't want any 50s" I'm not going to test my right to my own money, i just want the cash. Do you think there will be a problem with that plan?

Fireproof box / unintuitive hiding place essential for its success !

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Fireproof box / unintuitive hiding place essential for its success !

And smaller sacrificial stash (including passports for authenticity) to satisfy knife wielding bugler. At least enough to light up their eyes.

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Heh nice one ! Not sure about the passports though. Perhaps some semi important papers ;)

If they're even slightly smart they'll ask where the passports are kept. It's such an unlikely event and with so much at stake i'd be happy to lose them if it came to that.

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'kinell

This is 1929-33 again. Next few years = multiple bank runs all across the Eurozone. They're preparing.

Years? These bank runs will be quick, first to withdraw money is a winner.

The UK can at least print the money, so it can defeat a bank run, at the risk of destroying the pound.

Interesting to see papers now talking about the Irish Bank run so openly, and speculating on others. Normally they keep quiet about them, but not any more it seems.

It makes me wonder about the Irish problem. They seem determined not to get a bailout, and at the same time everyone else is determined to give them one. It must be because the Irish government are using the weak position of the Irish banks to hold the rest of Europe to ransom. Give us cheap money, or we let our banks fail, and you Europe, will get runs on your banks too. Even the mighty Germany would be felled by such an event, it can no longer print its own money. (ha ha).

I cant see why any of this is bad for the price of gold. Without paper currencies people can trust, only gold can step in and take up the mantle of true money.

Oh, and our welfare states will have to go. Bye Bye SMI we will miss you.

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I cant see why any of this is bad for the price of gold. Without paper currencies people can trust, only gold can step in and take up the mantle of true money.

Oh, and our welfare states will have to go. Bye Bye SMI we will miss you.

Indeed, can't understand why the PoG hasn't gone ballistic this last couple of days, especially in Euros. Having said that, it's just had a small up tick in the last couple of hours, not such a big movement in the euro price weirdly though..

Oh well, shoudn't grumble, looks like things are kicking off at last B)

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Indeed, can't understand why the PoG hasn't gone ballistic this last couple of days, especially in Euros. Having said that, it's just had a small up tick in the last couple of hours, not such a big movement in the euro price weirdly though..

Oh well, shoudn't grumble, looks like things are kicking off at last B)

Could it be losses that have to be funded?

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If they're even slightly smart they'll ask where the passports are kept. It's such an unlikely event and with so much at stake i'd be happy to lose them if it came to that.

You'll get a visit from MI5 posing as thugs (playing themselves really). They'll get you to give them your passport, then you'll be charged with materially abetting terrorism and you'll be thrown in jail and have your assets confiscated.

Buy some silver and keep some ten pound notes for authenticity. Bury the metal AND your passport in Aunt Jess's back garden. They'll never look there seeing as she's such a loyal Daily Mail reader.

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This is 1929-33 again. Next few years = multiple bank runs all across the Eurozone. They're preparing.

That's why I'm exchanging my STR stash for a house with a small mortgage, any extra savings are in government accounts (NS&I). Rights to own property is starting to look better than rights to compensation from a failed bank.

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There are just so many problems in the system.

Ireland just doesn't want to be the first to trigger it all off.

The entire financial system is on the brink of imploding.

At least a sovereign state can start again, time to take out the banks.

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Interesting thread.

Have some PMs, have some cash now looking to move the other 40% or so of what we have around - currently looking at putting some in PayPal (seriously) and other non standard bank accounts but going to investigate NS&I stuff now as others have said they should be the last to go.

Any opinions most welcome for a relative economic newbie!

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Paypal wont be any different imo as they still need to stick the money they hold somewhere. Personally I would just spread it around UK banks becuase UK banks have the most assets over banks* from other countries.

*

http://www.bankofengland.co.uk/publications/speeches/2010/speech455.pdf

Tables 1 and 2 convert to dollars and you'll see the top10 UK banks have 1.5times as many assets as top 10 US banks.

Cheers for the link to that pdf but with RBS and Lloyds in those lists it makes me seriously question what worth these "assets" actually have - £1,696 billion in RBS in my mind means at least 10% in Irish banks, another 30% in property which is falling all the time etc :unsure:

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Cheers for the link to that pdf but with RBS and Lloyds in those lists it makes me seriously question what worth these "assets" actually have - £1,696 billion in RBS in my mind means at least 10% in Irish banks, another 30% in property which is falling all the time etc :unsure:

My mate has an RBS IO liar loan.

I confidently predict that thats £145,000 they'll never see again.

Rinse and repeat nationwide.

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I'll be taking some thousands out tomorrow and asking for it in 20s "because the person i'm buying the car from doesn't want any 50s" I'm not going to test my right to my own money, i just want the cash. Do you think there will be a problem with that plan?

withdrawal wasn't questioned but it might have helped that i paid in a bundle of cheques first, didn't seem to mind giving it in 20s either even though she had to "go downstairs" for some more, not sure if that's a euphemism for "print some more". Couple in front of me were questioned by another cashier though and they told her it was for "Christmas shopping", a likely story :rolleyes:

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  • 150 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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