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Tuesday, March 19, 2013

US Deposits In Perspective: $25 Billion In Insurance, $9,283 Billion In Deposits; $297,514 Billion In Derivatives

Earlier today [4], the American Banking Association reminded Americans that there is absolutely nothing to worry about when it comes to the sanctity of US deposits: after all there is a whopping $25 billion in the FDIC insurance fund which means "insured depositors are safe and their deposits are protected by a strong FDIC fund....The FDIC insurance fund has over $25 billion in reserves and the banking industry " Obviously supposedly "insured" depositors in Cyprus also though there was nothing to worry about, until they woke up on Saturday with a haircut between 6.75% and 9.9% on their money in the bank. Sadly, it may be the case that the ABA is being just modestly disingenuous in its statement. Why? Instead of explaining it in detail, here is a snapshot that does more than thousands of words ever could.

Chart drawn to scale.

[5]

The $25 billion in touted deposit insurance is supposed to preserve and protect (granted not in their entirety) some $9,283 billion in total US deposits. A far bigger problem, however, is when one considers the "asset" side of the US banks' ledger: remember deposits are unsecured liabilities. And for US banks, sadly, over the counter derivatives represent the vast majority of "off the books" assets. According to the latest OCC quarterly report [6], the total derivative notional outstanding of the Top 25 holding companies is $297,514 billion, or nearly $300 trillion. In other words there are 32 times more notional derivatives than there are total deposits, while the ratio of gross derivatives to deposit insurance is a concerning 11,900-to-1.

And with that, we hand it back to the ABA to comfort all US depositors that Cyprus could never possibly happen in the US.

Monday, March 18, 2013

Steve Forbes: Here's Why Cyprus Is Bad For All Of Us!

What in the world is going through the minds of European officials with their crazy, destructive demands with Cyprus? Seizing a portion of peoples’ bank deposits is the kind of thing one would expect from Argentina or other kleptocratic third-world governments. It sets an awful precedent shredding the rule of law, which is the bedrock of a free and vibrant society. The fact that Cyprus is small is irrelevant. The germane fact is that it was Western Europe, supposedly a strong believer in the rule of law, that engaged in this Hugo Chavez-like move. Now, it’s not inconceivable that President Obama or somebody with a similar ideology could propose seizing and integrating people’s 401K plans into Social Security. And in a panic, Congress would go along...

http://www.forbes.com/sites/steveforbes/2013/03/18/for-whom-does-the-cyprus-bell-toll-alas-all-of-us/

Factbox: Cyprus Contagion – Who’s Looking Poorly?

1. Cyprus bailout sets levy on bank deposits. Should euro zone depositors be worried? 2. How big is the levy? 9.9% on deposits over â‚¬100k; 6.75% on smaller deposits; Deposits under â‚¬20k may be exempted; Levy intended to raise â‚¬5.8bln 3. News sent euro zone bank stocks as much as 4% lower as investors fear precedent is set... 4. So how exposed are the euro zone strugglers? Total Bank Deposits: Italy: â‚¬2,437.1bln. Spain: â‚¬2,297bln. Greece: â‚¬252.5bln.

Why Cyprus matters to US Investors

Wall Street is heavily invested in bank debt across the European Union. If banks begin falling as a result of the Cyprus 'bailout,' investors in the U.S. will feel the loss.

By Cyrus Sanati

FORTUNE -- The terms of the Cypriot "bailout" announced late Friday are simply atrocious and should be revised to protect small depositors to avoid potentially crippling bank runs from popping up across Europe. Forcing bank losses on account holders who believed their money was protected by government-backed deposit insurance violates one of the most sacred of trusts between a bank and its customers. As such, the agreement, if it stands, threatens to crash the entire Cypriot banking system, which could have dangerous effects for banks across the European Union, as well as for investors on Wall Street, who have bet billions of dollars backing EU banks and sovereign notes.

End of Systemic Trust - the beginning of the end of financial system

How about in the US? Could the US declare a bank holiday and unilaterally devalue the currency in one swift move? I will get over 9,000 responses saying this could never happen in the good ol’ US of A but of course it could. In fact it has already been done before during FDR’s first 100 days in office. The template already exists. Electronic banking only makes the process that much easier.

Technically, since the Fed has been running a policy of monetary inflation since about 1920, the government here already has been quietly taxing the savings accounts of its citizens without their permission for decades. The subtle difference between what Europe is doing in Cyprus and what the Fed does every day to American citizens is that the Cyprus theft is happening in one discrete event while the Fed’s theft drips in slowly over years.

But no matter which way you look at the situation, expect things to deteriorate from here.
Did you or your firm stash a bunch of money off-shore in some tax-friendly haven that probably has a favorable relationship to the British Crown? Best of luck with that. Tax havens are nothing more than legal arbitrages. With the value of law moving to zero, the value of your account approaches the same.

http://www.zerohedge.com/print/471569

The Botching of the Cyprus Bailout: Worse Than Lehman Brothers

Everyone now agrees that Treasury Secretary Hank Paulson badly botched the Lehman Brothers crisis of 2009. But at least he had an excuse. Panicked by the speed of Lehman’s meltdown, he had no time for second thoughts. By comparison the German-led group of EU officials who engineered this weekend’s Cyprus bank bailout don’t have a leg to stand on. Although they had years to consider their options (Cyprus’s problems are closely related to those of Greece and have long been almost as obvious), they have opted for a “solution” that amounts to probably the single most inexplicably irresponsible decision in banking supervision in the advanced world since the 1930s.

As my colleague Tim Worstall has pointed out in a well argued contributionyesterday, they have weakened – perhaps catastrophically – the principal pillar supporting modern banking. This pillar is deposit insurance. Ordinary savers who had received a solemn assurance that deposits up to 100,000 euros were safe are now being asked to take a haircut. This raises questions about deposit insurance throughout the EU and invites runs on banks not only in the most “financially-challenged” nations such as Greece and Spainbut even in Italy and France.

http://www.forbes.com/sites/eamonnfingleton/2013/03/17/the-botching-of-the-cyprus-bailout-worse-than-lehman-brothers/

EU plan to seize bank accounts causes markets to sell off

NEW EU PLAN: STEAL BANK ACCOUNTS... Island set to seize personal savings... Plan moves ahead as vote delayed... Putin: 'Unfair,' 'Dangerous'... FT: Here come bank runs... Germany: Not our idea... Italy to follow? Markets rattled... Euro tumbles... Dow drops... LIVE...

Cyprus deal shock sends shares tumbling, gold up

LONDON (Reuters) - The surprise decision by euro zone leaders to part-fund a bailout of Cyprus by taxing bank deposits sent shockwaves through financial markets on Monday, with shares and the bonds of struggling euro zone governments tumbling.

The bloc struck a deal on Saturday to hand Cyprus rescue loans worth 10 billion euros ($13 billion), but defied warnings - including from the European Central Bank - and imposed a levy that would see those with cash in the island's banks lose between 6.75 and 9.9 percent of their money.

http://finance.yahoo.com/news/yen-firms-asia-shares-fall-001926588.html

Sunday, March 17, 2013

The Botching of the Cyprus Bailout: Worse Than Lehman Brothers

ATMs drained as bailout tax triggers run on bank deposits

Panic: people queued to withdraw money after it was determined that part of the Greek bailout would come from the bank accounts of savers. Photo: Reuters

In a move that could set off new fears of contagion across the eurozone, anxious depositors drained cash from ATMs in Cyprus on Saturday, hours after European officials in Brussels required that part of a new €10 billion ($12.6 billion) bailout must be paid for directly from the bank accounts of savers.

The move - a first in the three-year-old European financial crisis - raised questions over whether bank runs could be set off elsewhere.

Jeroen Dijsselbloem, president of the group of euro-area ministers, on Saturday declined to rule out taxes on depositors in countries beyond Cyprus, although he said such a measure was not currently being considered. Although banks placed withdrawal limits of €400 on ATMs, most of them had run out of cash by early evening. People around the country reacted with disbelief and anger.

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Tuesday, March 19, 2013

Monday, March 18, 2013

Wall Street is heavily invested in bank debt across the European Union. If banks begin falling as a result of the Cyprus 'bailout,' investors in the U.S. will feel the loss.

Sunday, March 17, 2013