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geezer466

Bank Failures Now Responsibility Of Depositors

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http://uk.reuters.com/article/2013/06/27/us-eu-banks-idUKBRE95Q02L20130627

After seven hours of late-night talks, finance ministers from the bloc's 27 countries emerged with a blueprint to close or salvage banks in trouble. The plan stipulates that shareholders, bondholders and depositors with more than 100,000 euros ($132,000) should share the burden of saving a bank.

Where is the money going to flow too?

Given the fact most Banks in the zone are technically insolvent anyway will we see actually see large scale runs when now where else is safe.

Any rumour about a banks solvency from here on in will serve to hasten its demise.

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http://uk.reuters.com/article/2013/06/27/us-eu-banks-idUKBRE95Q02L20130627

Where is the money going to flow too?

Given the fact most Banks in the zone are technically insolvent anyway will we see actually see large scale runs when now where else is safe.

Any rumour about a banks solvency from here on in will serve to hasten its demise.

So bail ins are the future? Hadn't anyone and everyone with more that 100k euros better take their money out pretty damn quick? And isn't there the possibility that they could change the rule protecting deposits less that 100k euros?

So what bank can be regarded as safe? :o

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...depositors should stick to government guaranteed limits....if you have more money than this spread can accomodate, then you need to run your own Bank Risk programme...and move your funds around accordingly...it's always been like this...more so before Governments started the hand outs...why should tax payers pay ...?...when most have no savings anyway....!..... :rolleyes:

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The current interest rates on offer for depositors don't really cover the current level of risk of bail in etc - even within the guaranteed limits. Not by a long chalk.

As depositors money is at greater risk than is reflected in interest rates then there's a reasonable case for them to be given a say in the running of banks perhaps by having one or two depositors representatives on each bank's board.

In the past when banks were more responsible it was reasonable to let normal directors have that responsibility but as there's an endemic tendency towards fraud and sharp practice in banks these days then some independent depositors representation is needed in the boardroom.

Edited by billybong

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Don't worry 3 seconds after a bank fails the politicians will blink and bail out their buddies. But they are talking big now when it is all talk.

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From another website. I thought this was interesting and relevant as it shows the contempt retail "customers" are treated with when it comes to custodianship.

I am a former lawyer, and I thought relating to your query you might find the email below that I sent to a potential custodian instructive.

All best,

Anonymous

Dear Sam,

As discussed, my investment thesis is based on the view that there is excess societal debt and as this debt level declines (as it must, through either inflation, default, or both) gold will increase in value. Part of this credit bubble exists as a natural by-product of the fractional reserve banking system, of which the hyper-hypothethication of assets by the brokerage industry is but one outgrowth. It is this latter phenomenon that, I believe, threatens the integrity of the fund’s ownership of its assets, as the recent "vaporization" of assets at various brokerage firms attests.

I read with interest both the recent Federal Appeals Court decision in the Sentinel Case, available here:

http://dl.dropbox.com/u/32961642/SentinelRuling.pdf

And this article discussing the implications:

http://www.acting-man.com/?p=19030

In brief, it seems that Sentinel improperly moved customer assets from segregated accounts to lienable accounts and then used its lien to pledge these assets as collateral against various repo positions in its proprietary trading accounts. When the repo market seized in the summer of 2007, Sentinel found itself having to place ever more collateral with its bank, the Bank of New York, to raise cash as the repo transactions matured, which it accomplished by raiding ever more customer accounts.

When Sentinel collapsed, Bank of New York claimed that their secured claim to the pledged assets (formerly in segregated accounts) had priority over the unsecured claims of Sentinel’s customers. The court agreed, despite the facts that: a) Sentinel’s moving the assets from segregated accounts to lienable account was illegal and contrary to its customer agreement, B) Sentinel’s using segregated customer assets as collateral to the Bank of New York was expressly forbidden by the agreement between the two parties, and c) internal Bank of New York emails showed that bank officers knew that the collateral being posted was originating from segregated accounts.

It seems, as a matter of law, that even though the CEO and head trader at Sentinel were convicted of fraud for the co-mingling of the clients’ segregated assets (proving this was fraud), the assets themselves nevertheless ended up at the Bank of New York. The customers can only look to the shell of Sentinel for recovery and, of course, there are little or no assets remaining in that entity. The Bank of New York was made whole, but the client assets were vaporized.

It is the above situation that I wish to avoid, and I am curious you have or can construct what is, in effect, a legal lock-box whereby even if the assets were fraudulently moved to another entity, I would be able to recover them from that entity.

Given the above, a few questions:

1) Are assets held in a segregated manner?

2) Please let me know what, if any, proprietary trading your firm engages in (that is, I would like to assess any motivation that might possibly arise to raid customer assets for collateral, or any other, purposes).

3) Though I am not an expert in the area of law discussed above, it appears to me that the issue in the Sentinel case hinged on that fact that the Bank of New York was a secured creditor and the customers, albeit owed a duty, were unsecured. I wonder if your firm were to grant me a first priority lien over my assets, it would defeat the ability to use the assets for nefarious purposes or, if they were so used, I would have a superior claim to retrieve them. I understand that in paragraph 4 of your account agreement, customers grant you a continuing security interest in their assets to make sure they pay their bills. I would propose that this lien be limited to the amount of debts, if any, owed to you, and the balance of the assets be subject to a first priority lien back to the fund or an affiliated company. Please let me know if you have thoughts on this structure.

5) My recollection is that JP Morgan is your main sub-custodian. Since JP Morgan is also the major player in the derivatives market and has been at the center of many of the recent scandals involving the vaporization of assets, this relationship makes me uneasy (especially given my understanding that the 2005 Bankruptcy Act specifically exempts claims involving derivatives from the automatic stay, meaning, like Bank of New York above, under certain conditions JPM can attach collateral with no legal process and without the possibility of claw-back, as the customers of MF Global are now discovering). Is your custodian agreement with JPM a matter of public record? I would be very interested to see it. And, I would want to understand the issues discussed above in terms of the potential vaporization of your firm’s assets at the JPM level, i.e., the possibility of assets disappearing to some other counter-party notwithstanding your presumed agreement with JPM that they not be used as collateral (as what happened to Sentinel’s customers).

I appreciate your time in considering these issues, and I look forward to discussing.

NB: the article enclosed above discusses the legal principle, which goes all the way back to Rome: nemo dat quod non habet (one cannot give what one does not have), in order words, the thief cannot pass good title. If A steals B’s watch and sells it to C, B recovers the watch free and clear from C (because title was never passed), and C can only look to A for restitution of this purchase price (good luck to C!). The author of the article thinks Sentinel was like A, stealing B’s assets to pledge to C.

It appears the court in the Sentinel case ruled that broker-dealers are in the role of trustees. A trustee has the legal authority to alienate assets – i.e., he can pass title. The beneficiary of a trust, if defrauded by the trustee, cannot go after the recipient of the property, because the recipient has good title (unless part of a conspiracy). The beneficiary can only go after the assets of the trustee, which in this situation is always zero.

I hope that clarifies the legal situation of brokerage firms as interpreted by the Seventh Circuit Court of Appeal.

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Don't worry 3 seconds after a bank fails the politicians will blink and bail out their buddies. But they are talking big now when it is all talk.

I can assure that this is not just talk. We have already seen this rolled out in Cyprus and it will be used again. I understand why there is a lot of cynicism about bankers and politicians on this site but it is not always realistic. Bail-in is very much the future of bank resolution.

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I can assure that this is not just talk. We have already seen this rolled out in Cyprus and it will be used again. I understand why there is a lot of cynicism about bankers and politicians on this site but it is not always realistic. Bail-in is very much the future of bank resolution.

But, but they're too big to fail... Aren't they?

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Does anyone think it is a conspiracy to push people into buying property instead of holding large deposits and push the prices up?

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But, but they're too big to fail... Aren't they?

The whole point of bail in is to reduce the TBTF problem. Bail-in can mean that banks can fail without tax payer bailout or systemic impact.

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Does anyone think it is a conspiracy to push people into buying property instead of holding large deposits and push the prices up?

No, because it isn't.

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Does anyone think it is a conspiracy to push people into buying property instead of holding large deposits and push the prices up?

I think its more just the logical next step in systematic theft of wealth from "the little people": Step 1 low/zero IRs -> step 2 money printing -> step 3 direct deposit confiscation.

Edited by goldbug9999

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Does anyone think it is a conspiracy to push people into buying property instead of holding large deposits and push the prices up?

I was thinking this.

They are looking to push depositors cash into hard assets...

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.....so what is this saying to savers.....do your due diligence checks thoroughly on the organisation in question before allowing them to care and spend your cash. ;)

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Great for crooks. A bank isn't like a normal business because they don't make nothing and they don't serve anyone but themselves therefore having the ability to steal deposits when things get rough would be excellent for them. No need to fix a broken criminal enterprise model.

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The only difference between use of depositor and bondholder cash for 'bail ins' and their use pre financial crisis and overturned in the heat of the moment seems to be that the bank just carries on as though nothing has happened after dipping into customer money.

Does anyone know what happens to equity holders and staff (their bonuses and pensions that should be sequestered).

If this is the distinction as I fear, am I the only one who can see a whole load of moral hazard? Casually dipping into customer money with no ramifications is a disaster.

Moral hazard is that banks would get bailed out by the government. Bail in ensures the financial risk takers get hit.

Equity holders are completely wiped out. Pensions are ring fenced.

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After seven hours of late-night talks, finance ministers from the bloc's 27 countries emerged with a blueprint to close or salvage banks in trouble. The plan stipulates that shareholders, bondholders and depositors with more than 100,000 euros ($132,000) should share the burden of saving a bank.

Wow.... so the plan is to apply the law as it's always been.

Rather than the practise for the last few years: shovelling money from the average taxpayer to people who by definition are vastly wealthier than the average taxpayer.

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Does anyone think it is a conspiracy to push people into buying property instead of holding large deposits and push the prices up?

No, the masses buy with credit FROM the bank, not with money they have IN the bank. This is the end of the road for the PTB ability to put over tax payer backed bank bail-outs, there is just too much unrest now around the world, they are running scared IMO.

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How come Co-op have retained majority ownership of their bank. Surely what remains should go to remaining bond holders?

Plus - given that the staff are responsible for any mess rather than pension funds, bond holders and svaers....surely the staff should be at the front of the firing line?

So you are saying that employees should be held financially liable for the losses of her employer? Tell that to the poor dear who has worked behind the counter at RBS for 30 years that she has lost her pension and now owes the government £40bn.

it might be good if banks returned to being partnerships but they are not. Therefore we cannot hold employees financially liable.

In terms of coop, it was low on capital but not insolvent. Also there was no bail in regime in place. The bondholders in question have subordinate debt, which is a type of share capital, so fair game.

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Seems to m Bail in means...sorry mate, we're broke and you crapped out.

Others would call this, and rightly so, DEFAULT.

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So what they have now decided is that the standard practice that existed before they decided they were masters of the universe was the correct one all along. Perhaps we should be getting optimistic. Surely the next logical step is that they realise that you can't keep a credit bubble going by constantly borrowing and printing?

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How come Co-op have retained majority ownership of their bank. Surely what remains should go to remaining bond holders?

Well the parent group is putting in £1bn of cold hard cash.

It's pretty standard for lenders to a troubled company writing off some if the debts in return for a cash injection of of equity from the shareholders...

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Great for crooks. A bank isn't like a normal business because they don't make nothing and they don't serve anyone but themselves therefore having the ability to steal deposits when things get rough would be excellent for them. No need to fix a broken criminal enterprise model.

..if you're concerned keep your money in a mattress...you don't have to use a Bank...there is no law in this.... :rolleyes:

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How come Co-op have retained majority ownership of their bank. Surely what remains should go to remaining bond holders?

Plus - given that the staff are responsible for any mess rather than pension funds, bond holders and svaers....surely the staff should be at the front of the firing line?

..the ethical bank ...Labour Party donors... :rolleyes:

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  • 243 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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