Mario Draghi’s “Whatever it takes”

Behar den beste, euroa mantentzearren.

Mario Draghi’s famous speech on July 26, 2012 at UKTI’s Global Investment Conference over the ‘irreversibility’ of the euro and ECB’s preparedness to do ‘whatever it takes’ to preserve the euro.

Bideoa: https://www.youtube.com/watch?v=tB2CM2ngpQg

Segida

Ikus Mario Draghi, EBZ eta nola hasi zen ‘guztia’

EBZ: azken albisteak

(i) Gordailuen babesa ez da gehiagorik beharrezkoa

ECB Proposes End To Deposit Protection¹

Submitted by GoldCore

It is the ‘opinion of the European Central Bank‘ that the deposit protection scheme is no longer necessary:

‘covered deposits and claims under investor compensation schemes should be replaced by limited discretionary exemptions to be granted by the competent authority in order to retain a degree of flexibility.’

To translate the legalese jargon of the ECB bureaucrats this could mean that the current €100,000 (£85,000) deposit level currently protected in the event of a bail-in may soon be no more.

(…)

Bail-ins, who are they for?

According to the May 2016 Financial Stability Review, the EU bail-in tool is ‘welcome’ as it:

…contributes to reducing the burden on taxpayers when resolving large, systemic financial institutions and mitigates some of the moral hazard incentives associated with too-big-to-fail institutions.

As we have discussed in the past, we’re confused by the apparent separation between ‘taxpayer’ and those who have put their hard-earned cash into the bank. After all, are they not taxpayers? This doesn’t matter, believes Matthew C. Klein in the FT who recently argued that “Bail-ins are theoretically preferable because they preserve market discipline without causing undue harm to innocent people.”

Ultimately bail-ins are so central banks can keep their merry game of easy money and irresponsibility going. They have been sanctioned because rather than fix and learn from the mess of the bailouts nearly a decade ago, they have just decided to find an even bigger band-aid to patch up the System.

‘Bailouts, by contrast, are unfair and inefficient. Governments tend to do them, however, out of misplaced concern about “preserving the system”. This stokes (justified) resentment that elites care about protecting their friends more than they care about helping regular people.’ – Matthew C. Klein

But what about the regular people who have placed their money in the bank, believing they’re safe from another financial crisis? Are they not ‘innocent’ and deserving of protection?

(…)

Why change the bail-in rules?

The ECB’s 58-page amendment proposal is tough going but it is about halfway through when you come across the suggestion that ‘covered deposits’ no longer need to be protected. This is determined because the ECB is concerned about a run on the failing bank:

If the failure of a bank appears to be imminent, a substantial number of covered depositors might still withdraw their funds immediately in order to ensure uninterrupted access or because they have no faith in the guarantee scheme.

This could be particularly damning for big banks and cause a further crisis of confidence in the System:

Such a scenario is particularly likely for large banks, where the sheer amount of covered deposits might erode confidence in the capacity of the deposit guarantee scheme. In such a scenario, if the scope of the moratorium power does not include covered deposits, the moratorium might alert covered depositors of the strong possibility that the institution has a failing or likely to fail assessment.

Therefore, argue the ECB the current moratorium that protects deposits could be ‘counterproductive’. (For the banks, obviously, not for the people whose money it really is:

The moratorium would therefore be counterproductive, causing a bank run instead of preventing it. Such an outcome could be detrimental to the bank’s orderly resolution, which could ultimately cause severe harm to creditors and significantly strain the deposit guarantee scheme. In addition, such an exemption could lead to a worse treatment for depositor funded banks, as the exemption needs to be factored in when determining the seriousness of the liquidity situation of the bank. Finally, any potential technical impediments may require further assessment.

The ECB instead proposes that ‘certain safeguards’ be put in place to allow restricted access to deposits…for no more than five working days. But let’s see how long that lasts for.

Therefore, an exception for covered depositors from the application of the moratorium would cast serious doubts on the overall usefulness of the tool. Instead of mandating a general exemption, the BRRD should instead include certain safeguards to protect the rights of depositors, such as clear communication on when access will be regained and a restriction of the suspension to a maximum of five working days by avoiding a cumulative use by the competent authority and the resolution authority.

Even after a year of studying and reading bail-ins I am still horrified that something like this is deemed to be preferable and fairer to other solutions, namely fixing the banking system. The bureaucrats running the EU and ECB are still blind to the pain such proposals can cause and have caused.

(…)

(ii) Mehatxu berria batek Europako hondamena ekar dezake

Ignore Merkel And Brexit: According To Bill Blain, A New Threat Can Bring Europe Crashing Down²

Blain’s Morning Porridge, Submitted by Bill Blain of Mint Partners

Europe is like a 4D game of Jenga³, and Germany is a very wobbly block – as are the banks

Europe is an enormous 4 dimensional game of Jenga.  At the moment there are far too many blocks in play. Some of them are likely to leave the edifice teetering but standing. The question is: will any cause it to tumble?

(…)

… the wobbliest Jenga Block might remain the European financial system – and I don’t mean moving the EBA to Paris. (Good luck to them. After all, the French government would never ever be overly cosy with banks… would it?

The latest wizard wheeze from the ECB is a real sweetie… according to a discussion paper published by the ECB last week on revision the Union’s crisis management framework; if a bank looks wobbly, then: “covered deposits and claims under investor compensation” should be replaced by “discretionary exemptions”.

Crashing minor chords.

The issue of German liability for the new European deposit insurance scheme (EDIS) was one of the issues that caused the coalition talks to fail: no Germans politician wants associated with policies that would mean paying the liabilities of Italian banks! 

It might be even more confusing. Has the ECB just turned the basis of finance on its topsy-turvy head – again? If you’ve been buying covered bonds issued by undercapitalised, over-NPL’d European banks – then worry. By putting “covered deposits” in the firing line, covered bonds lose secured status and look subject to the same bail-in **** and all the other uncertainty the ECB leaves in its wake. Pfanbriefe anyone? Suckers! 

And getting rid of depositor credit insurance? What a marvellous idea. It certainly fits with the European dream. You know the one: how Europe would work much better if there just weren’t any pesky complaining citizens to worry about. Why not just Europeanise the whole European banking sector, take everyone’s money and give it to French farmers and Brussels Eurocrats?

It would be much simpler.

Of course it’s all about the Germans refusing to bail out feckless foreign types. (Of course it is, everything in Europe is about the Germans.) It’s a carrot and stick approach to solving the Italian bank conundrum – if they reduce NPLs, then the ECB will graciously bail depositors via the EDIS. Otherwise, the Germans aren’t going to give them access. 

The ECB knows best. (Which is to do what the Germans tell it to do…)

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