Think your bank deposits will always be 100% guaranteed by the FDIC? Think again.

I think this is a huge story, and it takes very little to tell it. These are the basics on deposit confiscation and how we got there:

■ You know that the EU-forced solution to the failure of banks in Cyprus is to require the Cypriot government to confiscate (“tax”) deposits. That news is everywhere you look; it’s not in dispute or doubt. The latest has depositor losses at 60% due to the bailout-related “one-time” tax.

■ “Confiscating deposits” is exactly the opposite of “insuring deposits,” which is what is required in the EU, and also offered by the FDIC (as the ads say, “your deposits are insured up to $250,000″).

■ The next monster taxpayer-financed bank bailout could spark a revolution. Find me anyone who isn’t a friend of Big Money who doesn’t hate the Bush-Obama bailout. Dem, Republican, Libertarian, frog-on-a-rock — no one liked the bailout.

■ This takes a taxpayer-financed bailout off the table as the next way to make bankers whole when they stumble.

■ But bankers are going to stumble soon, and big. The derivatives market is huge, and they’re aggressively reversing the tepid Dodd-Frank derivatives regulations as we speak. Of course, friends-of-big-banks in Congress are helping (that’s you, Ann Kuster).

■ So the next big bailout (which is coming) will have to come from somewhere else.

Guess where that “somewhere else” is? Deposits.

Nations have already started to institute rules that enable deposit confiscation

There’s an international move by national governments to write regulations that permit deposit confiscation in the case of bank failure. This is exactly the Cyprus model, and if the news stories are correct, confiscating deposits was being considered or enabled prior to Cyprus bank-failures.

New Zealand (h/t a very alert reader last week; my emphasis and paragraphing):

National [Government] planning Cyprus-style solution for New Zealand

bank-failure

Bank failure via

The National Government are pushing a Cyprus-style solution to bank failure in New Zealand which will see small depositors lose some of their savings to fund big bank bailouts, the Green Party said today.

Open Bank Resolution (OBR) is Finance Minister Bill English’s favoured option dealing with a major bank failure. If a bank fails under OBR, all depositors will have their savings reduced overnight to fund the bank’s bail out.

“Bill English is proposing a Cyprus-style solution for managing bank failure here in New Zealand – a solution that will see small depositors lose some of their savings to fund big bank bailouts,” said Green Party Co-leader Dr Russel Norman. “The Reserve Bank is in the final stages of implementing a system of managing bank failure called Open Bank Resolution. The scheme will put all bank depositors on the hook for bailing out their bank.

“Depositors will overnight have their savings shaved by the amount needed to keep the bank afloat. …”

Here’s what the New Zealand government says about “Open Bank Resolution” (my emphasis):

What is an OBR?

The Open Bank Resolution policy is a tool for responding to a bank failure. It allows the bank to be open for full-scale or limited business on the next business day after being placed under statutory management (as a result of, for example, an insolvency event). This means that customers will be able to gain full or partial access to their accounts and other bank services, whilst an appropriate long-term solution to the bank’s failure is identified.  …

Why should depositors bail-out banks?

The OBR policy is designed to ensure that first losses are borne by the bank’s existing shareholders. In addition, a portion of depositors’ and other unsecured creditors’ funds will be frozen to bear any remaining losses. To the extent that these funds are not required to cover losses as more detailed assessment of the position of the bank is completed, these funds will be released to depositors. At a high level, this outcome replicates the outcome that would apply in the event that a failed bank was liquidated. The primary advantage of the OBR scheme, however, is that depositors would have access to a large proportion of their balances throughout the process. This contrasts with what would happen under a normal liquidation, where depositors might not have access to any of their funds for a significant period.

Why aren’t deposits guaranteed?

During the recent global financial crisis the government took the decision to put in place a temporary guarantee on retail deposits. On 11 March 2011 the Minister of Finance announced that further guarantees would not be provided following the expiry of the existing scheme. Furthermore, the Minister ruled out the possibility of introducing a compulsory deposit insurance scheme.

Read the rest if you like. That’s a government of New Zealand publication.

Deposit confiscation is being planned in the U.S. and the U.K.

Just as the New Zealand plan has been in process for a while, so is a similar plan in the U.S. and the U.K. This piece is making the rounds and making waves. It should (again, my emphasis; h/t a must-read DownWithTyranny piece):

It Can Happen Here: The Confiscation Scheme Planned for US and UK Depositors

Posted on March 28, 2013 by Ellen Brown

Confiscating the customer deposits in Cyprus banks, it seems, was not a one-off, desperate idea of a few Eurozone “troika” officials scrambling to salvage their balance sheets. A joint paper by the US Federal Deposit Insurance Corporation and the Bank of England dated December 10, 2012, shows that these plans have been long in the making; that they originated with the G20 Financial Stability Board in Basel, Switzerland (discussed earlier here); and that the result will be to deliver clear title to the banks of depositor funds. …

Although few depositors realize it, legally the bank owns the depositor’s funds as soon as they are put in the bank. Our money becomes the bank’s, and we become unsecured creditors holding IOUs or promises to pay. (See here and here.) But until now the bank has been obligated to pay the money back on demand in the form of cash. Under the FDIC-BOE plan, our IOUs will be converted into “bank equity.”  The bank will get the money and we will get stock in the bank. With any luck we may be able to sell the stock to someone else, but when and at what price? Most people keep a deposit account so they can have ready cash to pay the bills.

The 15-page FDIC-BOE document is called “Resolving Globally Active, Systemically Important, Financial Institutions.”  It begins by explaining that the 2008 banking crisis has made it clear that some other way besides taxpayer bailouts is needed to maintain “financial stability.” Evidently [the writers anticipate] that the next financial collapse will be on a grander scale than either the taxpayers or Congress is willing to underwrite …

No exception is indicated for “insured deposits” in the U.S., meaning those under $250,000, the deposits we thought were protected by FDIC insurance. This can hardly be an oversight, since it is the FDIC that is issuing the directive. …

December 10, 2012 was pre-Cyprus. Deposit-confiscation wasn’t something cooked up on the fly. It’s been in the works for a while, by all the international Bigs. Note that the source of the negotiations is “the G20 Financial Stability Board in Basel, Switzerland.” This is indeed international.

Bottom line

This proves three things, I think:

  1. Major governments exist, in part, to make sure no banker takes a loss anywhere in the world, regardless of risky behavior on the part of the banks. The world and its governments serve the bankers.
  2. The next banking crisis is anticipated to dwarf the last one, and the Bigs have been making plans to bail it out with depositor funds, not taxpayer funds. Cyprus is just the first implementation.
  3. Loss of deposit insurance is coming to the U.S.

The Rich vs. the Rest. “All your money are belong to us“ indeed. The outcome has bloodshed written all over it.

[Update: Title slightly modified to reflect that outside of Cyprus, these are just plans, at least so far.]

GP

To follow or send links: @Gaius_Publius


Gaius Publius is a professional writer living on the West Coast of the United States. Click here for more. Follow him on Twitter @Gaius_Publius and Facebook.

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  • business in UAE

    What is Bank account? Can you tell me about Bank Account in your point of view how is a Bank Account? What is the abberietion of FDIC can you sent me the abberietion of this job? What is your thinking about Bank Deposit Account will always be 100% guaranteed by the FDIC?

  • eahopp

    When people have nothing left to lose, that is when they will start pulling out their guns and shooting whoever they feel is responsible for their plight….or just go out with a big BOOM!

  • archiebird

    If there is no accountability by the government, are the people forced to make accountability a reality?

  • http://www.facebook.com/profile.php?id=671376473 Adrien Burke

    I moved my money on 11/5/11 to a credit union.

  • Scrooge

    I know this is kind of late and nobody will probably read it but… All of you who stated you just keep cash on hand have a good point, and I decided that if I ever had more than the paltry few pennies I have now I’d probably do the same. But then I glanced in my walled where I happened to be carrying a One Billion Dollar Zimbabwe note. It’s “probably” unlikely hyper inflation like what happened there would happen here, but given the strange way the world operates today I certainly can’t rule it out. At the risk of sounding like a Beckian fool, it seems that it might make sense to hold at least part of your wealth in some form of commodity, such as gold, that is less likely to devalue as quickly and might even soar in value.

  • http://twitter.com/Scytherius Jonas Grumby

    And people look at me like I’m crazy because I haven’t used a bank in 15 years.

  • anniebonneau

    does this affect credit unions, too?

  • anniebonneau

    can we join you?

  • lynchie

    I think that they fear their masters, the 1% they could care less about us. They worship the dollar and everyday they get up, read what the 1% wants done this week, collect their checks and set out to screw us over.

  • lynchie

    What about when we can’t pay for services. You think the gas and electric company will put us on the arm. Time to bury a can in the back yard

  • http://twitter.com/amordecosmos amordecosmos

    Sounds like great news for Canadian banks.

  • condew

    Just printing lots of money to bail out the banks amounts to the same thing as confiscation; in business I believe they call this “dilution”.

    Say all your dollars are backed by something of real value; gold in Ft. Knox, the nation’s productivity, whatever. Now you print 10% more paper dollars backed by the same something to bail out Wall Street, banks, or whatever. Every dollar that existed before you made 10% more dollars is now worth 10% less; if your savings owned 1% of whatever backed the dollar before, now you own 1/1.1%, about .9%. Just like inflation.

    Which is one reason I find the plan to reduce the inflation adjustment on Social Security truly repulsive. Monetary policy never even attempts to reduce inflation to zero, so year after year government policy makes your savings buy less. They even tax you on the “gain” from interest which is usually less than inflation. Saving for your retirement is like trying to fill a leaky bucket.

    So it only seems fair that payments from Social Security be adjust for the full losses due to inflation; the government chose a policy that favors inflation that steals a little bit of everything you’ve saved every year. They should at least give back in the form of Social Security and Medicare benefits that guarantee you’ll have enough to live on no mater how much of everything else they allow to melt away.

  • http://www.facebook.com/mutationdevice Edeiwmurk Nivek

    “Although few depositors realize it . . . our money becomes the bank’s, and we become unsecured creditors holding IOUs” Even fewer realize that’s all their “money” was in the first place.

  • http://www.falconk9.com Ginger_FL

    We have a safe as well. Only keep enough in bank to cover bills, rest goes in safe.
    Did we as a society learn nothing from the first depression?
    How about the latest bank heist in 2007…
    Cypress is the next logical step for the banksters, stealing in broad daylight with the blessing of their employees (gov. Officials).

  • Just_AC

    Okay, and for all of you STILL wondering what you should do with your money, a Spanish company has the solution

  • Ninong

    The banking system in Cyprus wasn’t a natural banking system. It was more of a scam than anything else. It was based on being a tax haven for wealthy foreigners and off-shore companies. It came undone when the Greek bond market went to hell. Cyprus represents only 0.2% of the European Union’s economy, so they’re extremely tiny.

  • Ninong

    That would be a big problem for Bank of Cyprus if that’s what happened because the Russians account for about $30 billion of the $68 billion in total deposits in all Cyprus banks and their two favorite banks were Bank of Cyprus and Laiki Bank because of their ties to the government.

  • Ninong

    There’s a new problem for any wealthy Russian bureaucrats thanks to a new law Putin signed today. Anybody working for the government has 90 days to de-shore all of their financial accounts or they will be dismissed! In other words, if you work for the government you have to close all of your off-shore accounts and put your money in Russian financial institutions or he will sack you. They have to file a full financial disclosure form with the government.

    Putin keeps his money in Switzerland and Lichtenstein.

  • Snaggletooth

    Oh I agree, it’s actually why one of my smaller businesses accepts bitcoins as payments. I couldn’t take that risk with a larger business but for a little side computer business it works.

  • Just_AC

    Hmm, left this b4 but it didn’t show – Cyprus banks left an “out” for the Russian Billionaires – they didn’t close their branches in England! http://www.zerohedge.com/news/2013-03-25/have-russians-already-quietly-withdrawn-all-their-cash-cyprus

  • Indigo

    Banks are handy for filtering the checks that need to be written every month to pay rent and cable and the like and they’re good places to hold a small percentage of savings as well as automatic deposits from employers and so forth. A portion of the rest of it could go into investment in stocks and bonds, annuities and whatever and, naturally, a certain percentage goes under the mattress. Actually, quite a bit goes under the mattress. Neo-liberal ideology is far too dystopian for planning long range personal security.

  • Indigo

    I did that but never Krugerrands.

  • http://www.rebeccamorn.com/mind BeccaM

    Individuals can perhaps protect themselves somewhat in this way. Still another, I should think, would be to avoid the ‘too big to fail’ banks, which are the most likely candidates for deposit seizures and use community banks and credit unions.

    However, even if some prudent individuals still have cash, the economy of any nation that does this is toast. Businesses small and large have no option but to use banks, and their very existence depends on the flow of money from point A to point B. Deposit seizures and bank holidays are like sand in the gears.

  • http://www.rebeccamorn.com/mind BeccaM

    Just what the world needs: A global run on the banks, because their gov’t lackeys are telling us they’re planning to take what little money we have in them — for no other reason than to keep the banks afloat so they can keep gambling with both our money and the trillions they invented out of thin air.

    I’ll repeat this particular prediction: The plutocratic bastards have just ensured the Cypriot economy is now ruined for decades to come. This will happen again in any other country where they are allowed to pay off bankster creditors using people’s deposited cash. Why? Because any viable economy depends on the flow of capital, from individuals up through businesses and even including large corporations. Destroying confidence in the banks will bring any nation’s economy to its knees.

  • Just_AC

    Further info from the link Gaius sent me at http://downwithtyranny.blogspot.com/

    Are
    you safe, then, if your money is in gold and silver? Apparently not–
    if it’s stored in a safety deposit box in the bank. Homeland Security
    has reportedly told banks that it has authority to seize the contents of
    safety deposit boxes without a warrant when it’s a matter of “national
    security,” which a major bank crisis no doubt will be.

  • Just_AC

    And I was reading this past weekend that our DHS has told banks that they have the right to confiscate Safety Dposit boxes, too. The Mattress keeps looking better and better

  • HolyMoly

    When many Latin American countries were suffering from hyper-inflation (so bad, in some cases, that retail stores had to close midday every day to change their prices), many people were converting their native currency into a more stable one, which was at the time the Swiss franc and the U.S. dollar. Although we’re not talking about inflation, it looks to me like a situation like the one mentioned in this article couldn’t be all that healthful to the economy.

    Of course when you have countries in Europe and Oceania doing pretty much the same thing with their banks, where can you turn?

  • HolyMoly

    “Legally the bank owns the depositor’s funds once they are put in the bank.” Not if it never gets there. It’s your labor that earned the money, not theirs. They really want to bail out banks in this way? To me it seems to be a surefire way to sink the banks, once people cancel their direct deposits and go straight to cashing paper checks.

    How much you want to bet that the uber-wealthy’s accounts won’t be purged? Or that they’ll get a warning a day or two before it goes into effect, so they can withdraw their funds?

    I’m with you. Time for me to get a safe. Right now I have emergency funds in a jar, hidden in a very inconspicuous place.

  • Ford Prefect

    Killer fact: undocumented workers put billions into SS every year, even though they can’t ever collect it. The solvency issue isn’t a big deal. Just eliminate the cap. End of story.

  • Ford Prefect

    Kudos, GP. This ought to be a massive deal-breaker for everyone. Add in the deregulation and the corporate protection racket that is the federal government and we can now see what’s coming.

    I hope you keep pushing this one. The FDIC paper has been around since December last year and only now is anyone giving it the attention it deserves. I only learned about this a week ago or so.

    Imagine what happens to the economy when suddenly, companies can’t pay their electric bills or make payroll… over night.

    Neo-Liberalism is a dystopian ideology.

  • Snaggletooth

    This is exactly why I pay all my bills in checks. I have taken time to carefully arrange that all my bills are due between the 1st and the 5th of the month. I make a trip to the bank once a month and deposit what I need to write those checks. I have a savings account with with only the minimum $5 dollar amount to keep it open and my checking free. I do have an ATM card for occasional online purchases, but not keeping excess funds in the bank keep me frugal with those. A small but heavy fire-proof safe keeps things secure enough. I got mine on sale for 100 bucks last year from a local security shop. There is no reason to let the banks keep your money for essentially free, since there is basically no interest rate.

  • Ninong

    FDIC insures banks deposits up to $250,000; NCUSIF insures credit union deposits up to $250,000. Both are federal and banked by the full faith and credit of the U.S. government.

    SIPC covers your stock brokerage account up to a limit of $500,000 (but not more than $250,000 of that can be cash deposits). In other words, if you have $300,000 worth of stock and $200,000 worth of cash deposited at your brokerage and the brokerage goes bankrupt and somehow they don’t have enough money to cover all of their account holders, then SIPC is the insurer of last resort. Your brokerage may over additional coverage to cover any potential losses over $500,000 (like maybe up to $10 million) but that is through a separate insurance policy.

  • http://www.facebook.com/profile.php?id=100001426939279 Carl Kerstann

    You want to see an Egypt style meltdown in the U.S. just tax deposits at 60% and stand back.

  • Bomer

    Would this apply to credit unions too, or is it just the big banks?

  • Ninong

    Remember when the then-CEO of BofA sold out to that crook at Nations Bank? He and the other BofA top brass were paid off big time to sell out and they did. Gianinni’s daughter was so pissed she quit the board in protest. Then a year later the BofA dude who used to be Chairman at BofA was let go from his position as President of the new BofA by the crook at Nations Bank (who is now retired). The scumbag former BofA Chairman was picked up by one of the NY banks as a fancy Vice-Chairman or something. I think the BofA guy got about $150 million in the original deal as a sort of guaranteed golden parachute. I don’t feel like looking it up but that’s what I remember.

    Worst of all, Nations Bank (now called BofA) moved the headquarters from San Francisco to Charlotte, NC.

    P.S. — Hugh McColl was the name of the guy at Nations Bank at the time. David Coulter was the name of the guy at BofA who sold out.

  • Ninong

    Pat Buchanan told us we should all buy Krugerrands to show our support for the white apartheid South African government, remember that? When he said that, gold was trading around $300/oz and today it’s around $1600/oz. When I was young it was $35/oz.

  • cdawson

    This is why we have a safe. .5% annual interest, meh – forget the bank. And no one knows how much money we have. No one knows how much money we make on the side. We are the only ones with the combination. And we raise almost all our own food so aren’t hostages of the food industrial complex. They ain’t taking my dough.

  • HolyMoly

    Good reason to cash my paychecks and keep the money at home. It’s not like I was earning anything more than 25 cents a month in interest on it anyway.

  • nicho

    end-of-the-world type situation. Like maybe that super volcano under Yellowstone Park blows up or something.

    Or the CEO of B of A wants to buy a new yacht.

  • Ninong

    GP,

    Does the Cyprus “tax” on deposits affect *all* banks there or just Bank of Cyprus and Laiki Bank? Are they taking anything at all from deposits under €100,000? I thought they were just going to hit those two banks and just deposits over €100,000? I know originally they were talking about a broader tax that would have taken a smaller percentage from insured deposits but I think they abandoned that idea, right?

    I realize that having any part of your money converted to questionable equity in the bank is not a great idea from the standpoint of the depositors but Laiki is 84% government owned and that’s the only bank they are taking apart, and they are sticking Bank of Cyprus with the bill for that. Or is this going to affect all banks in Cyprus? In any event, they’re not touching any part of the insured €100,000 at any bank, right? Just out of curiosity, what percentage of the funds over €100,000 at those two banks do you think are Russian owned? I know Putin doesn’t keep any of his money in Cyprus but I think a lot of the other Russian billionaires do and I think it was mostly in those two banks.

    Cyprus was a unique situtation and a disaster waiting to happen. The $68 billion in bank deposits was about eight times the size of their economy. That’s absurd! They were a tax haven for Russian billionaires and they got burned, thanks to Greek bonds going belly up. The Cyprus banks bought Greek bonds and the Greek bonds fell like crazy.

    As far as here in the US, deposits over $250,000 are not covered by FDIC. Unless you are filthy rich, all you have to do is not go above the $250,000 limit at any one institution. If you have $700,000 you would like to deposit all you have to do is open accounts at three different banks. That way ALL of it is covered by FDIC insurance. Tapping FDIC insured deposits seems like something that is extremely unlikely unless we’re talking about an end-of-the-world type situation. Like maybe that super volcano under Yellowstone Park blows up or something.

  • eahopp

    I know this is a terrible thing to say, but if such a policy were to take place in the U.S., would the people start burning banks and killing bankers? Because that is where this appears to be heading.

  • Naja pallida

    It isn’t even that complex. It’s just outright theft.

  • Drew2u

    hey, gaius, re: social security. If undocumented workers were paid a living wage on the books, how would that affect the solvency of social security?

  • http://twitter.com/arleeda Dawn Vincent

    So what can we do with our money–withdraw it and hide it under the mattress?

  • nicho

    Just assume that they’re all part of a Ponzi scheme — and you’re on safe ground.

  • nicho

    What a coincidence!

  • http://www.facebook.com/randyariddle Randy Riddle

    I think you’re forgetting that regulatory control of US banks and FDC insurance is fairly recent in US history – in the 1930s, to be exact. The US offered insurance to prevent melt-downs that would affect depositors and destabilize the banking system; in exchange, the government regulated the banks to keep them honest. The last part of the equation – bank regulation – has fallen apart in the past couple of decades, with lobbying money flowing to politicians. In that kind of climate, how can a consumer know which bank is trustworthy and which are high tech Ponzi schemes?

  • Hue-Man

    The FSB looked familiar; from wiki: “Chairman of the board is the Canadian Mark Carney, Governor of the Bank of Canada.” and soon to be Governor of the Bank of England! Formerly, Goldman Sachs.

  • nicho

    US politicians fear US voters.

    On what planet? US politicians fear corporations and the corporate media. The voters – or at least enough of them – can be convinced to do anything in about three weeks by the media. Why do you think so many voters consistently vote against their own best interests?

  • Michael

    The EU can do tho o Cyprus because Cyprus has little recourse. US politicians fear US voters. And overall this reads to dramatically. Yes, the bank controls your funds, you’re loaning it to them. There are risks to loaning people money. Don’t loan your money to a bank you don’t trust.

  • ComradeRutherford

    Also in this is a huge bonus and salary increase for the CEO that engineered the ‘confiscation’ of his depositor’s money. Just like 9/11, those responsible for the crime are promoted and given raises.

  • http://twitter.com/Grrrowler Todd

    I don’t know if this is legit, but if so, it’s interesting: http://www.zerohedge.com/news/2013-04-01/list-released-132-names-who-pulled-cyprus-deposits-ahead-confiscation-day. It seems obvious that the confiscation in Cyrpus was planned well in advance. And, what a great way for a business (bank) to do whatever it wants and never have to suffer any risk.

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