"Like money in the bank" was once a phrase for something safe, predictable, and reliable.
Like holding money in the bank.
Lawmakers worldwide at the highest levels are currently transforming banking laws, and depositors are footing the bill for their ill-advised monetary maneuvering.
It's one overwhelming, scary trend.
But if we understand what's happening, we can easily get on top of the situation and make sure our profits, not the banks, come first. Here's how…
"Bail-Ins" Threaten Your Savings
A while back I highlighted how an ominous risk to your capital was growing.
I explained how the 2013 bail-ins that took place in Cyprus banks were a trial balloon. And a successful one at that. Essentially bank depositors were tapped to help prevent a Cypriot collapse.
Since then, a growing list of nations have been joining the bail-in movement.
Overseeing this process is the Financial Stability Board (FSB), an international body set up in the wake of the 2008-2009 financial crisis to develop and recommend changes to deal more effectively with large financial institutions that can be deemed "Too Big to Fail."
Still, some European nations aren't signing up as many bail-in club members quite fast enough.
EU member nations have been implementing rules known as the Bank Recovery and Resolution Directive (BRRD). These are being set up to allegedly shield taxpayers from funding bailouts.
The idea is, à la Cyprus, failing banks would actually dip into customer deposits to bail themselves out, thus the term "bail-in." The EU's 28 members were to have joined in and passed such laws by the end of 2014.
But according to a recent Reuters article, the European Commission has warned France, Italy, Lithuania, Luxembourg, the Netherlands, Malta, Poland, Romania, Bulgaria, Czech Republic, and Sweden to get a move on. They've been told they have just two months to comply, after which they may be referred to the EU's Court of Justice.
In many jurisdictions, depositors expect they can count on deposit insurance to offer some measure of protection should their bank become unstable or unable to pay out its deposits. In the U.S., the structure is the Federal Deposit Insurance Corporation (FDIC). Yet the FDIC claims in its 2014 annual report that its entire insurance fund holds merely a fraction of one percent of the entire bank system's deposits.
According to 2013 figures, the FDIC had $25 billion in its insurance fund versus $9.3 trillion in deposits at commercial banks. Hardly reassuring, is it?
In virtually all jurisdictions with such an insurance fund, the support is completely inadequate to provide anything beyond trivial coverage. The Austrian government passed a law in April removing itself as guarantor of bank deposits up to €100,000. Replacing that is a bank deposit insurance fund that's as inadequate as any other.
Just two years ago, Federico Ghizzoni, chief of the Milan-based banking group Unicredit, said it was "acceptable to confiscate savings to save banks" and that savings that aren't guaranteed by insurance or other means could be tapped to rescue failing banks.
Ghizzoni called for a common European solution, but went even further, saying the Basel Committee representing all countries should instead roll out such rules. That would, of course, leave nowhere to hide. Dalvinder Singh said in his book Banking Regulation of UK and US Financial Markets, "The bank-customer relationship of debtor and creditor provides that a bank does not have a continuous obligation to account for its decisions as to how it uses depositors' money."
He then added, "In general, unsecured creditors, such as depositors of a bank, will have very little redress to recover their debts if a company is put into liquidation."
Threatened deposits are not isolated to Europe. Australia is another country whose banking language, when read closely, offers little reassurance to depositors that their funds will be fully refunded in the event of a catastrophic fiscal event.
I could easily go on, but I think by now you get the picture. Don't expect your bank deposits to be safe in a bail-in scenario, and that includes the so-called "insured portion."
About the Author
Peter Krauth is the Resource Specialist for Money Map Press and has contributed some of the most popular and highly regarded investing articles on Money Morning. Peter is headquartered in resource-rich Canada, but he travels around the world to dig up the very best profit opportunity, whether it's in gold, silver, oil, coal, or even potash.