Bail-out Is Out, Bail-in Is In: Time for Some Publicly-Owned Banks

“[W]ith Cyprus . . . the game itself changed. By raiding the depositors’ accounts, a major central bank has gone where they would not previously have dared. The Rubicon has been crossed.”

—Eric Sprott, Shree Kargutkar, “Caveat Depositor

The crossing of the Rubicon into the confiscation of depositor funds was not a one-off emergency measure limited to Cyprus.  Similar “bail-in” policies are now appearing in multiple countries.  (See my earlier articles here.)  What triggered the new rules may have been a series of game-changing events including the refusal of Iceland to bail out its banks and their depositors; Bank of America’s commingling of its ominously risky derivatives arm with its depository arm over the objections of the FDIC; and the fact that most EU banks are now insolvent.  A crisis in a major nation such as Spain or Italy could lead to a chain of defaults beyond anyone’s control, and beyond the ability of federal deposit insurance schemes to reimburse depositors.

 

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