Video | Agriculture | Confidence | Economy | Energy | Employment | Finance | Media | Property | RBNZ | Science | SOEs | Tax | Technology | Telecoms | Tourism | Transport | Search

 


Chaos in Cyprus Banks, Problems for New Zealand Depositors

Chaos in Cyprus Banks, Problems for New Zealand Depositors
by Charles Drace


"Have you ever seen such an exhibition of incompetence as the EU has displayed in the Cyprus crisis of the last 10 days?" Analyst Martin Hutchinson, March 28, 2013

Ever since laws and deposit insurance schemes were put in place in the aftermath of the 1930's bank failures to protect depositors, almost everyone has assumed that bank deposits were the safest investments after government guaranteed bonds.

This is no longer the case. The lessons of the recent Cyprus example should not be forgotten.

In Cyprus in late March 40% of deposits over 100,000 euros were taken from depositors to bail out Cyprus's biggest bank as well as large EU banks who lent money to Cyprus banks. Various senior EU people involved with this programme have admitted that the Cyprus example is a 'template' for other countries.

The new term 'bail-in' has been coined to describe a bail-out that comes not from governments or the IMF but from depositors money.

"This approach [taking deposits] will be part of the European liquidation policy" Klass Knot, EU Council, March 28, 2013

"You need to be able to do the bail-in as well with deposits." Gunnar Hokmark, EU Parliament, March 29, 2013

"But in the Commission's proposal, which is under discussion, it is not excluded that deposits over 100,000 euros could be instruments eligible for bail- in." Spokesperson for EU Commissioner for Financial Regulation, March 26, 2013

Cyprus will not be an isolated case. According to an IT specialist at the Reserve Bank of New Zealand and the major law firm Buddle Findlay, our banks were instructed years ago to put systems in place for bail-ins from New Zealand depositors. Legislation is now in front of Parliament to facilitate this and could be in place as early as June. My understanding of the New Zealand legislation is that the cut-off point under which depositors will be protected can be changed at will and could be as low as $5,000.

The Bank of England and the US's Federal Deposit Insurance Corporation published a paper in December 2012 which described the bail-in programmes for the US and England.

Spain has already established such a programme.

As we can see from the comments above the EU is almost ready with an EU wide programme. Canada is also writing a bail-in programme.

I haven't heard anything about Australia but they will need to be doing something as their deposit protection scheme is not a funded insurance programme but is the direct liability of the Australian government.

After the bank failures in the US during the early Depression, the Glass-Steagall Act was passed to separate commercial banks from trading/investment banks. This Act was repealed in 1999. Similar laws were put in place in other countries but by the early 1990's they were ignored virtually worldwide by the big investment banks which have been using deposits in their commercial banks to fund futures trading by their investment banks, leading to the financial crises of 2000 and 2008.

The amount of derivative trading by investment banks is now estimated [no record is required to be kept] to be measured in quadrillions and the leverage is much higher than it was in 2008. Thus these big banks are in big trouble and the only solution is for them to go bankrupt or to save themselves by taking depositors money.

The governments of the US, EU and New Zealand have decided it is more important to save the big trading banks than it is to protect depositors money.

A recent report from the major law firm Buddle Findlay asks why the New Zealand government is the only country in the OECD that doesn't have a deposit insurance scheme?

All this poses big risks for individual and company depositors. Depositors in Cyprus are restricted to small daily withdrawals; their money is effectively frozen. All companies must pay for resources and purchases in small amounts of cash. The ports have come to a standstill and hundreds of companies are going out of business every day. Depositors can withdraw enough each day to pay for food and daily expenses but not enough to buy a TV, refrigerator, school tuitions or other bigger ticket item putting all businesses associated with items costing more than 300 euros out of business.

Money is already flowing out of Spanish and Italian banks as fear of the Cyprus Template being imposed on other countries rises.

As fund managers, we are not concerned about our funds because we can always buy government bonds virtually anywhere in the world instead of holding cash and we have access to non-New Zealand and non-EU bank accounts plus we hold gold which is the only real safe haven. But I have not found any way to protect my personal and company bank deposits.

I'm getting many advisories every day to hold on to gold at all costs and to buy more whenever possible and to hold it outside the banking system.


ENDS

© Scoop Media

 
 
 
 
 
Business Headlines | Sci-Tech Headlines

 

Future Brighter Money: RBNZ Releases New Bank Note Designs

New Zealand’s banknotes are getting brighter and better, with the Reserve Bank today unveiling more vibrant and secure banknote designs which will progressively enter circulation later next year. More>>

ALSO:

Commerce: Supermarket Inquiry Finds No Breaches By Countdown

The Commerce Commission inquiry into anti-competitive behaviour by Countdown supermarkets, alleged by former Labour Party MP Shane Jones, has found nothing to warrant prosecution, although it warns supermarkets to take care in the way they communicate... More>>

ALSO:

Crown Accounts: English Flags ‘Challenge’ To Budget Surplus

Finance Minister Bill English is warning next month’s half yearly fiscal and economic update from the Treasury may not forecast a budget surplus, saying that returning the government’s accounts to surplus in 2015 will be “a challenge”, given the decline in commodity prices and weak global inflation. More>>

ALSO:

March 2015: Netflix To Launch In Australia And New Zealand

World’s Leading Internet Television Network to Offer Original Series, Movies, Documentaries, Stand-Up Comedy Specials and TV Shows for Low Monthly Price More>>

ALSO:

Price Of Cheese (Is Up): Dairy Product Prices Fall To Five-Year Low

Dairy product prices fell in the latest GlobalDairyTrade auction to the lowest level in more than five years, led by declines in rennet casein and skim milk powder. More>>

ALSO:

Gordon Campbell: On The Australians Scoring Trade Points Against Us With The Chinese

It hasn’t been a great year for Trade Minister Tim Groser... To top it off, Australia has just signed a FTA with China that has far better provisions on dairy exports than what New Zealand currently enjoys in our own FTA with China. More>>

ALSO:

Iwi & Local Consultation: Oil And Gas Block Offer 2015 Begins

Energy and Resources Minister Simon Bridges today announced the start of the Block Offer 2015 process for awarding oil and gas exploration permits. More>>

Industrial Action: Stats NZ Throwing Public Money Away Duplicating Data

The Public Service Association (PSA) says Statistics NZ are throwing money away by collecting the same data twice for official statistics such as the Consumer Price Index... As part of the ongoing industrial action, field interviewers who are PSA members are continuing to collect data, but are not sending it through to Statistics NZ. More>>

ALSO:

Other Stats:

Space: Rosetta's 'Philae' Makes Historic First Landing On A Comet

After more than a decade traveling through space, a robotic lander built by the European Space Agency has made the first-ever soft landing of a spacecraft on a comet. More>>

ALSO:

Get More From Scoop

 
 
Standards New Zealand

Standards New Zealand
 
 
 
 
 
 
 
 
Business
Search Scoop  
 
 
Powered by Vodafone
NZ independent news