Tag Archives: Bank Runs

Revealed: The Run on Banks in Catalonia after the Independence Vote was Fomented by Madrid, by Don Quijones

The Spanish government will do whatever it takes to keep milk-cow Catalonia part of Spain. From Don Quijones at wolfstreet.com:

The clandestine role of the Spanish government in a run on deposits that drained €29 billion from Catalan banks.

Just over a year has passed since over two million people in Catalonia voted in a banned referendum to leave Spain. On that day, the separatists were given a brutal lesson in the raw power of state violence. Days later, they were given another harsh lesson, this time in the fickleness of money. Within days of holding the vote, which was brutally suppressed but not prevented by Spanish police, Spain’s north eastern region was forced to watch as one after another of its brand names moved their headquarters, at least on paper, to other parts of Spain.

Among the first companies to up sticks were Catalonia’s two largest banks, Caixabank and Banco Sabadell, which feared being cut off from European Central Bank funding in the event, albeit unlikely, of Catalonian secession. That would have meant no more virtually interest-free loans from the ECB or access to Europe’s repo markets. In other words, a death sentence, as Caixabank’s then president Isidro Faine recently admitted.

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Bank Deposits No Longer Off Limits as ECB Seeks Power to Freeze, by John Glover and Alexander Weber

Here’s the camel’s nose under the tent. In the next financial crisis you can be sure that bank’s will be unable to pay all of their liabilities. Customer deposits are liabilities, and bank runs start when people get nervous about their bank. Here’s the Catch-22, governments would be given the authority to freeze deposit withdrawals, but only at banks that are failing or likely to fail. In other words, as soon as the government freezes deposits, depositors will know the bank has one foot in the grave. That should calm them down. From John Glover and Alexander Weber at bloomberg.com:

  • Working paper retains power to stop payments of failing firms
  • Payments stay to affect derivative payments for up to 5 days
An illuminated euro currency symbol is projected on to the European Central Bank (ECB) headquarters in Frankfurt.Photographer: Martin Leissl/Bloomberg

The European Central Bank intensified its push for a tool that would hand authorities the power to stop deposit withdrawals when a bank is on the verge of failing.

ECB executive board member Sabine Lautenschlaeger said that bank resolution cases this year showed that a so-called moratorium tool, which would temporarily freeze a bank’s liabilities to buy time for crucial decisions, is needed. Her comment comes as policy makers in Brussels debate how such measures should be designed, and just days after the ECB officially called for the moratorium to extend to deposits as well.

Sabine Lautenschlaeger

Photographer: Krisztian Bocsi/Bloomberg

“If we have a long list of exemptions and we have a moratorium that doesn’t work, I do not want to have a moratorium tool,” Lautenschlaeger told a conference in Frankfurt on Tuesday. “Then you will never use it.”

EU member states appear ready to heed the request, according to a Nov. 6 paper that develops their stance on a bank-failure bill proposed by the European Commission. They suggest giving authorities the power to cap deposit withdrawals as part of a stay on payments only after an institution has been declared “failing or likely to fail.”
The power to install a moratorium “can in principle apply to eligible deposits,” the paper reads. “However, resolution authority should carefully assess the opportunity to extend the suspension also to covered deposits, especially covered deposits held by natural persons and micro, small and medium sized enterprises, in case application of suspension on such deposits would severely disrupt the functioning of financial markets.”

Leaked: EU Plans to Freeze Deposits to Prevent Bank Runs, by Don Quijones

What could go wrong? From Don Quijones at wolfstreet.com:

Desperate Times, Desperate Measures.

Following a spate of drastic banking interventions in Spain and Italy earlier this summer, the European Commission is preparing new legislation to prevent bank runs from completely wiping out Europe’s hordes of zombified lenders. According to an Estonian document seen by Reuters, that legislation would include measures allowing EU governments to temporarily stop people withdrawing money from their accounts, including by electronic fund transfers.

The proposal, which has been in the works since the beginning of this year, comes less than two months after a run on deposits pushed Banco Popular over the brink in Spain. In its final days, Popular was bleeding deposits at a rate of €2 billion a day on average. Much of the money was being withdrawn by institutional clients, including mega-fund BlackRock, Spain’s Social Security fund, Spanish government agencies, and city and regional councils.

The European Commission, with the support of a number of national governments, is determined that what happened to Popular does not happen to other banks. “The desire is to prevent a bank run, so that when a bank is in a critical situation it is not pushed over the edge,” a source close to the German government said.

Not everyone supports the new regulatory push. Some national governments and lenders fear the legislation will have the opposite of the desired effect, hastening frantic withdrawals at the slightest rumor of a bank being in trouble. “We strongly believe that this would incentivize depositors to run from a bank at an early stage,” said Charlie Bannister of the Association for Financial Markets in Europe (AFME).

Until now legislative proposals by the European Commission aimed at strengthening supervisors’ powers to suspend withdrawals had excluded from the moratorium insured depositors (those below €100,000 euros). If the new proposal is passed, pay-outs to insured depositors could be suspended for five working days. The freeze could even be extended to a maximum of 20 days in “exceptional circumstances.”

To continue reading: Leaked: EU Plans to Freeze Deposits to Prevent Bank Runs

The Blessing of Cash, by Joseph T. Salerno

The government wants to trap your money, and cash is a hindrance and a nuisance. From Joseph T. Salerno at mises.org via lewrockwell.com:

Starting today, the Royal Bank of Scotland will become the first bank in the U.K. to impose a negative interest rate on depositors. The negative rate will apply only to corporate customers, including mutual fund managers and pension funds, holding deposits of certain foreign currencies including euros. This means that RBS—in which the U.K. government still maintains a majority ownership stake since its 2008 bailout—will actually charge these customers to “borrow” their deposits. A few weeks ago, RBS notified more than one million small-business customers that they could also be charged for deposits if the Bank of England lowered the target interest rate, which now stands at .25%, into negative territory. Experts are warning that the latest move by RBS would “set alarm bells ringing” among small businesses and ordinary customers. The stage is set for a glorious and long overdue old-fashioned bank run if the BOE ventures to push rates into negative territory.

Meanwhile in the eurozone, since the ECB rate cut the interest rate in March to minus 0.4%, banks have paid a total of about 2.64 billion euros to keep their funds on deposit at the eurozone’s 19 central banks. With European central bankers threatening further rate cuts, private financial institutions are exploring the feasibility of circumventing the charges by converting central bank electronic deposit credits into cash and storing it in nonbank facilities. The German insurance company Munich Re is reportedly already storing tens of millions of euros at “a manageable cost,” and Commerzbank, Germany’s second-biggest lender, is considering a similar option.

Of course, any significant movement to convert bank reserves into cash would undermine the goal of central bank rate cutting because the cost of holding bank reserves in cold hard cash would not respond to a change in interest rates, short-circuiting central bank efforts to stimulate further bank lending. More significant, if the movement to convert deposits into cash spreads to the nonbank public, it would bring down the fractional-reserve banking system in short order. And herein lies the real reason why prominent establishment economists are now leading the charge in the War on Cash. By abolishing cash, they seek to lock everyone’s money holdings into the fractional-reserve banking system and make the system completely run-proof for all time. This would preserve and strengthen the so-called “transmission mechanism” of monetary policy, whose central element is fractional-reserve bank lending, which creates new deposits out of thin air.

Not coincidentally, Harvard and former IMF economist Kenneth Rogoff has just published a book a few days ago bearing the lurid title The Curse of Cash. The book garners effusive praise in back-cover endorsements from leading professional economists such as Ben Bernanke, Alan Blinder, and Michael Woodford. Rogoff reportedly calls for the abolition of all cash, not merely large-denomination notes. While admitting that cash has some advantages, Rogoff makes the sensational claim that the bulk of the $1.4 trillion of US currency in circulation is used to facilitate tax evasion and to finance illegal activities like human trafficking and terrorism. Oh yes—Rogoff also argues that a cashless economy would make monetary policy more efficient by preventing savers from hoarding cash whenever central bankers—advised by sage macroeconomists like Rogoff—decide that the “natural” or optimal rate of interest for the economy has become deeply negative.

Cash is an unambiguously a blessing to productive workers, savers, and entrepreneurs who wish to protect their hard earned money from the crazed theories and swindling schemes promoted by statists like Rogoff and the central bankers he advises.

https://www.lewrockwell.com/2016/08/joseph-salerno/cash-blessing/

Rich Man’s Bank Hit by Bank Run, Collapse, “Bail-In”, by Don Quijones

The powers that be are running out of fingers to plug up the leaking dike that is the European banking system. Seems holes have opened up in tiny tax-haven Andorra and Spain. One never knows which snowflake will set off the avalanche, but its coming if there’s any logic and consequences in this crazy world. From Don Quijones, at wolfstreet.com:

In Europe nary a day seems to go by without some mention or rumor of a bank run or bank closure. Ground Zero of the current troubles is Greece, whose broken financial system is now wholly dependent on regular infusions of euros from the ECB. The moment those infusions stop – something the ECB has warned could happen at any time – the country’s banking system collapses. On Wednesday Greek banks saw deposit outflows of €300 million, the highest in a single day since a February deal with the euro zone that staved off a banking collapse.

But it’s not just on Europe’s periphery that banks are experiencing problems. At the beginning of this month, Austria sent shockwaves throughout the old continent’s financial markets when the Austrian government refused to grant the scandal-tarnished, “bottomless pit” bank Hypo Alde another taxpayer-funded bailout. Instead, bondholders, even those with bonds guaranteed by the Austrian state of Carinthia, were made to eat the losses in one of the first cases of bank bail-ins since sweeping changes to EU-wide legislation last year [It was a “long-yearned-for shock of liberation” for taxpayers; read… Austria ‘Pulls Ripcord’ on Bailouts, Lets ‘Bottomless Pit’ Hypo Alpe Bank Drag State of Carinthia into Bankruptcy].

A Rich Man’s Mini-Bank Run

In recent days the mayhem has spread to Spain’s capital, Madrid, and Andorra, a tiny mountain-ringed tax-haven perched between France and Spain. The initial trigger of the panic was an accusation from the US government of money laundering and a host of other unsavory practices taking place at Andorra’s third largest bank, Banca Privada d’Andorra (BPA). Fears quickly escalated that the bank would be unable to pay the sort of fine that the US treasury might impose, setting off a mini-bank run that culminated in the imposition of capital controls at Andorran branches of BPA as well as the seizure of deposits of 15,000 account holders of the bank’s Banco de Madrid subsidiary.

http://wolfstreet.com/2015/03/21/don-quijones-rich-mans-bank-run-spain-andorra-bail-in-seizure-of-deposits/

To continue reading: Rich Man’s Bank Hit by Bank Run