Eight days ago, the European Central Bank offered its answer to a joint question from the European Parliament and Commission on the nature of eurozone banking crisis mechanisms. The ECB took a mere nine months to respond, but hidden away in 69 pages of acronyms, legalese and jargonated double-talk is what appears to be a suggestion that the bank customer guarantee scheme (DGSD) should have all its teeth pulled out one by one….while European citizens are under anaesthetic.
There is almost no certainty or clarity at all the in the ECB paper (you can view it here) and this is the main reason I think David Davis should ask the likes of Guy Verhofstadt, Jean-Claude Juncker and Michel Barnier what the reality is. They will claim not to know, and dismiss the suggestion both here and elsewhere – that DGSD is history – as “fake news”. In which case – to satisfy the dwindling band of Remainers – they should issue a statement saying that the deposit guarantee scheme will stay in force. Or better still, the angel of death Mario Draghi should do so.
The one-chord song Brussels has been singing since “negotiations” began is that the divorce cost needs to be settled before we get into the nitty-gritty. On the same basis, therefore, expat Brits in the eurozone need to know what guarantees the EU/EC/ECB/EP axis of overmanning they will supply about their banked money before any 2-way citizen protection scheme is signed off.
But this is the last thing Draghi will be happy to do, because he knows that if enough people interpret the November 8th response the way some commentators already are, there will be a bank run alongside a flight to gold.
That’s why Mario’s motto is “Keep it complex”:
‘2.1 The MREL consists of two parts: a loss absorption amount and a recapitalisation amount. The proposed amendments to the Bank Recovery and Resolution Directive7 (BRRD) and to the Single Resolution Mechanism Regulation8 (SRMR) provide the possibility for the resolution authority to adjust the MREL recapitalisation amount in order to adequately reflect risks resulting from the business model, funding model and overall risk. In addition, the ECB considers that the resolution authority should be allowed, after consultation with the competent authority, to adjust the MREL recapitalisation amount upwards to provide for a ‘safety margin’.’
For those of you who don’t know your SRMRse from your MRELbow (and that would include almost all MEPs plus 100% of Labour MPs) I should point out that MREL is what the bank needs to have in terms of eligible losses and customer-facing liquidity under the rules. The ECB is recommending that the banks should make themselves immune to a run, which is of course a nonsense, as such a thing doesn’t exist. It is also contradicted by another strangulated sentence later on saying that banks can only function with ‘flexible liquidity’, and futher obfuscates what on Earth the ECB is recommending by referring to the increased reserves as “a small buffer” in one place and “an extensive safety margin” in another.
However, to the layman it reads as if MREL makes the retail customer safer. In fact, it doesn’t appear to do any such thing. Thus, although there is an unintentionally hysterical passage at 2.11 about banks giving ‘clear and easily understandable disclosure
requirements and other safeguards to raise investor awareness of the risks associated’, in the same breath, reference is made to certain new “catches” to replace the DGSD:
‘One key factor in the implementation of an entity-specific MREL is the determination of an adequate transition period….the resolution authority should be given the flexibility to determine, on a case-by-case basis, a final period for compliance that is longer than [the current] harmonised minimum.’
So in other words, you may wait three weeks or ten years to get your life savings back, and hard luck if it’s the latter. There is more: one the one hand, ‘The ECB cautions that prolonged periods during which depositors have no access to their deposits undermine confidence in the banking system and might ultimately create risks to financial stability’ (no shit?) but on the other….[my highlights]
‘….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. Under that approach,
the competent authority could, for example, allow depositors to withdraw a limited amount of deposits on a daily basis consistent with the level of protection established under the Deposit Guarantee Schemes Directive (DGSD), while taking into account potential liquidity and technical constraints….’
Note the introduction of “covered” there: it is never adequately explained. Currently, the deal is “no quibble”: in future, crafty accountancy can be used to declare your money “not covered”. But even that diluted guarantee could be negated by further exemptions made by the authorities. These are to be limited as a means of retaining flexibility, but how are “limited” and “flexibility” to be defined?
One can see where things are headed by the reference to “limited daily withdrawals” to ensure the rest of us don’t starve….and then even that is rendered homaeopathic by the power of authorities to ensure that liquidity and unspecified technical stuff remain intact. In short, “the bank must survive and the citizens can go whistle for their money”.
This is the sort of soft soap that banking, regulatory and sovereign authorities could run a coach and horses through. Here’s another gem:
‘…..during a transitional period, depositors should have access to an appropriate amount of their covered deposits to cover the cost of living within five working days of a request…..’
Tough luck if you’re destitute, chum: we’ll make you wait a further five days, and still refuse to guarantee whether you can have 60 euros or 50 cents.
Everyone reading this stuff should take into account the following:
- How desperate the ATM situation got in Greece, and who caused it. (Hint: the ECB)
- As the 69 pages proceed, the DGSD is increasingly conspicuous by its absence
- The very existence of this paper blows away the paper-tiger confidence in the Eurobanking system affected by the Brussels buffoons
- Why talk about daily allowances if it is not the intention to dispense with the DGSD? Under the DGSD, your deposit is guaranteed up to €100,000
- “Covered” deposits may well be a reference to an entirely new exception definition to help them wriggle out of paying up – viz, ‘your money is guaranteed by another supplier, so he will have to reimburse you’. Good luck with that one.
- The previous behaviour of MEPS when in Brussels would suggest that a deadly combination of mefirst, idleness and ignorance will ensue that they will do nothing to protect you when the mammories go skywards.
Now fair enough, the biggest exposure of this document so far was by a gold marketer. It ran at Zero Hedge, and has all the hallmarks of paid-for content. Goldbugs have a vested interest in pointing out the shakey ethics and mendacity of bankers.
That said, they’re not wrong, are they? You know, about the shakey ethics and mendacity shtick. To be honest, I was sceptical before I went to the original document. Now I’m hugely suspicious.
The mainstream, old media haven’t gone anywhere near it. Google delivers hundreds of references under ‘ECB may drop bank deposit guarantee scheme’….but every last one of them is about the existing scheme. Even putting the same headline as the one at ZH into Big G produces diddly squat. And of course, at the bottom of the page there is always the health warning about “omissions under data protection legislation”: what a first class Nazi Enabling Act that law is.
While I do think a wider debate needs to start taking place about the ECB Paper, I don’t especially see it as anything more than confirmation of what I’ve always felt: that cometh the Four Horsemen, we shall not see bankers going to prison, nor sovereign States helping their citizens in any meaningful way, nor indeed hide or hair of our money. We shall not see the authorities for dust, in fact: twas ever thus.
The minute George Osborne started wittering about “reducing the burden on taxpayers from bank bailouts” the endgame was obvious. It was a wonderfully Orwellian piece of doublethink, whereby the drongoes were to be hoodwinked into believing there was any substantive difference whatsoever between taxpayers and bank depositors. And it came soon after concerted “reminders” started to appear in the media that “at the end of the day, all retail bank customers are creditors”.
Ask Waspi women in the UK cheated out of 60 year-old pension promises how much a “guarantee” from the self-styled élite is worth. The pigs in Animal Farm asserted, “All animals are equal, but some are more equal than others”. Ladies and Gentlemen, we are no more than pigshit on their shoes.
Hat tips due to several Sloggers and other sources who pointed the ECB Paper out to me