We know that since January 1st, in all European Union countries, a bank facing bankruptcy will be allowed to seize its clients’ accounts to bailout itself. The Bank Recovery and Resolution Directive (BRRD) is now being enforced – a scandal we’ve written about since 2013. Unfortunately, this idea – which is nothing more than legal robbery – seems to be gaining ground: it appears that even Switzerland will enforce it as well...
But it’s not over... it seems the United States is going in the same direction! Last November 30, the American central bank made a very important decision that the media barely covered: it implemented a new rule suppressing one of its original 1913 mandates, which was to be the lender of last resort for banks, as GoldBroker had warned. According to CNN, “with this new rule, failing or soon-to-be failing banks will not be able to apply for emergency loans from the Fed.”
But then, what will American banks do if their own existence is in jeopardy, due to major losses? Well, as a matter of fact, there is only one possibility left: seize their clients’ accounts. This is precisely what worries the bloggers on The Economic Collapse: “Fundamentally, what is happening is that responsibility has been transferred from banking authorities to the bank itself in order to maintain its solvency (...) and if their “assets” (creditors and bondholders) aren’t sufficient to salvage the bank, private depositors will be tapped, as we’ve seen in Cyprus.” According to The Examiner, “With the Dodd-Frank Banking Reform Act, which allows banks to re-mortgage the money and accounts of their own clients in case of a liquidity crisis (...) John Q. Public will be the one footing the bill for bailouts in future crises.” And, furthermore – another scandal – derivatives owned by the banks get priority status, ahead of clients’ accounts. “In principle, depositors are a bank’s foremost creditors. However, this has changed with the Bankruptcy Act of 2005, which modified the status of derivatives into senior debt obligations, thus having priority.” (GoldBroker via Web of Debt blog).
After Europe, the United States... will Japan follow suit, already, and then China? Emerging countries will, in most likelihood, take up on this most excellent idea... It makes sense, especially for countries: they are overly indebted and cannot, as they did in 2008, raise hundreds of billions to stave off a financial crisis. On the other hand, they do not have enough courage to engage in a deep reform of the banking sector (splitting deposit banking from investment banking, requiring a much higher percentage of equity, truth about derivatives). But they know some crisis will happen sooner or later, because all this “quantitative easing” from central banks has generated bubbles, but not any real growth – this will be a rude awakening. The solution? Let the savers turn into saviours!
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Philippe Herlin Finance Researcher / Doctor in Economics
Philippe Herlin is a researcher in finance and a doctor in economics of the Conservatoire National des Arts et Métiers in Paris. A proponent of extreme-risk thinkers like Benoît Mandelbrot and Nassim Taleb, and of the Austrian School of Economics, he will be bringing his own views on the actual crisis, the Eurozone, the public debts and the banking system. Having written a book on gold that has become a reference (L’or, un placement d’avenir, Eyrolles 2012), he wishes to see gold play a growing role in our economies, all the way to its full re-monetization.