Data and economic reality show that a depositor haircut has been a long time coming.
FORBES: With Cyprus, The EU Needs To Urgently Erase Europe's 'Nobody Loses' Mentality
Writing such a depositor preference into law would have two major consequences.
WSJ: Brussels Beat: Another European Divide: Protecting the Depositors
Pensions are a contract between an employee and his employer that is not unlike the contract between a depositor and his banker.
But if you were a depositor in a peripheral country that looked like it needed more money from the euro zone, what would your calculation be?
FORBES: Links 17 March: Cyprus Bailout And Predictions Of Disaster
Of course, one would think that a depositor would realize if they were hit with heavy overdraft fees, but clear disclosure is always a good thing.
FORBES: Overdraft Rules Mean Consumers Will Pay Up, or Get Out
We have had nearly five years when governments were nervous of suggesting that anybody could lose anything they lent to a bank, either as a depositor or an investor.
To a depositor, an interest-bearing account is an investment.
FORBES: We Don't Need TAG Accounts, We Need Sanity At The Fed
Now that people know that a depositor haircut is part of the European toolkit for dealing with banking problems, why would you sit around and wait for it to happen to you?
FORBES: Cyprus Depositor Tax: Genius Plan or the End of the Euro?
The only things that a common depositor gets is basic account services and perhaps a small amount of interest, but check out what the Henry Potters and even the much nicer bankers have and how they operate.
Conversely, if you are a wealthy Russian depositor in a Cyprus bank, this is a pretty raw deal.
Under that decision, money deposited into a bank is the property of the bank and the depositor holds a demand note in return.
Presently, the money becomes the property of the bank and the depositor receives a demand note.
FORBES: The Unintended Consequences Of The Greatest Economic Experiment
If a wire arrived at a bank, properly coded and sent, anything they did could be a disaster to the depositor.
Change banking laws so that money deposited in a bank remains the property of the depositor just as it would if he deposited the money in a warehouse.
FORBES: The Unintended Consequences Of The Greatest Economic Experiment
Private insurance is another option for the entity or the depositor, but one which has a cost associated with it.
But euro-zone policy makers may not have the luxury of time, particularly if loose talk of depositor haircuts continues to circulate in a country where a quarter of deposits are foreign-owned with overnight notice.
In one case that my partner and I worked many years ago at a regional bank, this premise was illustrated when an elderly depositor called the bank to report an apparent accounting error of about twenty dollars in interest in her IRS 1099 for her two Certificates of Deposit.
While I understand its appeal as a tool for resolving banking problems, I think the use of depositor levies could end up causing significant problems for the European banking sector.
FORBES: Cyprus Deposit Levy: No Panic Yet But Scary Long-Term Consequences
They also put physical and psychological distance between the depositor and his bank, which is counter to the idea of a community bank.
In that event, the sensible depositor would withdraw their money in physical Euro form, pack it into a suitcase and bury it in their garden.
FORBES: Greek Euro Exit: 60% Currency Devaluation, Default, Banking Sector Collapse
In this high-tech era when money moves at the speed of light, it makes less and less sense for banks to sit on a customer's deposit for days, collecting interest on the "float" while the depositor waits to draw on his deposit.
European policy makers are considering a host of proposals to eliminate implicit government guarantees, including a new resolution regime, turning some liabilities into bail-in debt that will automatically take losses, depositor-preference regimes that would subordinate unsecured bondholders, and U.K.-style plans to ring-fence certain activities.
Its use may halt a bank run, but at the cost of eventually trashing the value of the currency and indirectly the value of depositor accounts too.
应用推荐