Tag Archives: Bank Runs

Bank Run: Deutsche Bank Clients Are Pulling $1 Billion A Day, by Tyler Durden

Might this be the snowball rolling down the hill that starts the global financial avalanche? From Tyler Durden at zerohedge.com:

There is a reason James Simons’ RenTec is the world’s best performing hedge fund – it spots trends (even if they are glaringly obvious) well ahead of almost everyone else, and certainly long before the consensus.

That’s what happened with Deutsche Bank, when as we reported two weeks ago, the quant fund pulled its cash from Deutsche Bank as a result of soaring counterparty risk, just days before the full – and to many, devastating – extent of the German lender’s historic restructuring was disclosed, and would result in a bank that is radically different from what Deutsche Bank was previously (see “The Deutsche Bank As You Know It Is No More“).

In any case, now that RenTec is long gone, and questions about the viability of Deutsche Bank are swirling – yes, it won’t be insolvent overnight, but like the world’s biggest melting ice cube, there is simply no equity value there any more – everyone else has decided to cut their counterparty risk with the bank with the €45 trillion in derivatives, and according to Bloomberg Deutsche Bank clients, mostly hedge funds, have started a “bank run” which has culminated with about $1 billion per day being pulled from the bank.

As a result of the modern version of this “bank run”, where it’s not depositors but counterparties that are pulling their liquid exposure from DB on fears another Lehman-style lock up could freeze their funds indefinitely, Deutsche Bank is considering how to transfer some €150 billion ($168 billion) of balances held in it prime-brokerage unit – along with technology and potentially hundreds of staff – to French banking giant BNP Paribas.

One problem, as Bloomberg notes, is that such a forced attempt to change prime-broker counterparties, would be like herding cats, as the clients had already decided they have no intention of sticking with Deutsche Bank, and would certainly prefer to pick their own PB counterparty than be assigned one by the Frankfurt-based bank. Alas, the problem for DB is that with the bank run accelerating, pressure on the bank to complete a deal soon is soaring.

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The Yellow Vests Get it Right, by Robert Gore

Financial nuclear warheads.

The mainstream media has degenerated irreparably. Here’s a reliable rule of thumb: if it’s important it’s not covered; if it’s covered it’s not important. Stories in the American mainstream press about Yellow Vest protests have been few. One aspect of the protests, transcendently important, has received scant coverage.

The Yellow Vest protestors have called for a coordinated run on French banks. Whether they realize it or not, they’re playing with nuclear warheads that could annihilate not just the French, but Europe’s and the entire world’s financial system. Because inextricably linked to the ends of contemporary governments―how much they can screw up the lives of those who must live under them—is the question of means―how do they fund their misrule? The short answer is taxes and debt.

Since 1971, when President Nixon 
“temporarily” suspended international convertibility of dollars for gold (it’s never been reinstated), the monetary basis of the global economy has been fiat debt. Neither government or central bank debt nor currencies are tethered to any real constraint, like precious metals (see “Real Money,” SLL). Thus, politicians and monetary officials can create as much debt as they want: debt by fiat.

Government and central bank debt is at the apex of the global debt pyramid. The next tier is commercial banks that have accounts at central banks. Those accounts are bank assets and central bank liabilities, or debts. Central banks expand their fiat liabilities to banks in exchange for banks’ fiat government debt, an exchange called debt monetization, which is a bit of a misnomer since no “Real Money” is involved. The “monetization” is the central bank’s fiat expansion of banks’ accounts with the central bank in exchange for fiat government debt, which expands banks’ assets available for loans to governments, businesses, and individuals.

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French Yellow Vest Protesters Urge Supporters To Spark Bank Run With Mass Withdrawals, by Tyler Durden

You won’t see much in the mainstream media about the Yellow Vests’ planned bank runs, but it may be the most important aspect of their protests. From Tyler Durden at zerohedge.com:

Activists from the Gilets Jaunes (Yellow Vest) movement have vandalized nearly 60% of France’s country-wide speed camera network, according to Interior Minister Christophe Castaner, who said that the wilful damage was a threat to road safety and endangered lives, according to the BBC.

The BBC’s Hugh Schofield, in Paris, said evidence of the vandalism is visible to anyone driving around France, with radar cameras covered in paint or black tape to stop them working. But the extent of the damage – now believed to affect more than half of all 3,200 speed cameras in the country’s network – was unknown until Mr. Castaner’statement on Thursday.
He said the devices had been “neutralised, attacked, or destroyed” by members of the protest movement. –BBC

Speed limits in France have become a hot-button topic, after the Macron government lowered the limit on many roads from 90 km/h (55 mph) to 80 km/h (50 mph) early last year.

Yellow Vest protesters upset over an increase in fuel taxes have also complained about the rising costs of commuting for those who can’t afford to live near urban centers where they work – citing speed cameras and toll roads in their complaints.

Bank run?

While the Yellow Vest movement has been taking to the streets for violent clashes with French police, activists from the movement are now recommending that French protesters empty their bank accounts to spark a bank run – in a move which one protester, Maxime Nicolle, called a “tax collector’s referendum.”

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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/