Sunday, March 24, 2013

Ellen Brown Explains Basel Recommendation to Tax Depositors in Bank Failures

Majia here: Ellen Brown explains  a Basel proposal to reduce 'moral hazard' by the banks by eliminating free bailouts and forcing all banking participants to bear the costs, including bank depositors.

In principle, this approach is seen as a strategy for enforcing market disciplines upon financial players.

In reality this approach will cause victims of bank malfeasance to pay for the costs of that malfeasance:

Ellen Brown The Cyprus Bank Battle: The Long-planned Deposit Confiscation Scheme: A Safe and a Shotgun or Public Sector Banks?

[Excerpted] The Long-planned Confiscation Scheme

The deal pushed by the “troika” – the EU, ECB and IMF – has been characterized as a one-off event devised as an emergency measure in this one extreme case. But the confiscation plan has long been in the making, and it isn’t limited to Cyprus.

In a September 2011 article in the Bulletin of the Reserve Bank of New Zealand titled “A Primer on Open Bank Resolution,” Kevin Hoskin and Ian Woolford discussed a very similar haircut plan that had been in the works, they said, since the 1997 Asian financial crisis.  The article referenced recommendations made in 2010 and 2011 by the Basel Committee of the Bank for International Settlements, the “central bankers’ central bank” in Switzerland.

The purpose of the plan, called the Open Bank Resolution (OBR) , is to deal with bank failures when they have become so expensive that governments are no longer willing to bail out the lenders. The authors wrote that the primary objectives of OBR are to:
  • ensure that, as far as possible, any losses are ultimately borne by the bank’s shareholders and creditors . . . .
The spectrum of “creditors” is defined to include depositors....

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