Depositors Beware – Bank Deposits Of Over €100,000 Are At Risk

A bank holiday was observed in the U.K. and Ireland yesterday.

Ireland’s Finance Minister, and current European Council President, Michael Noonan, is introducing a proposal to European finance ministers that will hit depositors that hold over €100,000 in the event of future bank collapses.

The Irish know a bit about bank wind-downs, and maybe have realized sticking it all on the tax payer, severe austerity, doesn’t leave citizens with many euro’s left to consume and jump start the economy.

Noonan is proposing at Tuesday’s meeting in Brussels that large depositors (over €100,000) are “bailed in” as part of future bank wind-downs.

According the The Irish Times, “Under a compromise text proposed by the Irish presidency, uninsured deposits of over €100,000 would be “bailed in” in the event that a bank is resolved, but depositors would rank higher than other creditors in the event of a wind-down.”

In this set up there would be “deposit preference” where creditors would first assume losses and bank depositors would accountable at the end of the process.

Not all European countries agree, some of them believing that uninsured depositors under €100,000 would incur losses even though they should be protected by the deposit guarantee scheme.

XAU/USD, 1 Year – (Bloomberg)

There is currently no Eurozone bank resolution process in place and after the Cyprus disaster EU lawmakers want transparency for the future.

The European Commission proposes that by changing from “bailouts” to “bail-ins” the losses incurred would not be worse than the losses that shareholders and creditors would have suffered in regular insolvency proceedings that apply to other private companies, noted The Irish Times.

European Central Bank president Mario Draghi and EU economics affairs commissioner Olli Rehn are to introduce a working plan by 2015. The Irish presidency of the European Council is hoping to reach a consensus amongst council members by the end of next month.

XAU/EUR, 1 Year – (Bloomberg)

The poor results from Danske Bank in Ireland show that bad news is not just from domestic but also foreign owned banks operating here.

Irish Finance Minister, Noonan, knows that the Irish government will need another €30bn above the €64bn which the Irish taxpayers have already shelled out to bail out the banks.

It seems even the number crunchers at U.S. Investment powerhouse BlackRock who conducted stress tests on Irish banks in March 2011 have fallen short of what is need to bail out the Irish banks. AIB, BOI, Permanent TSB, and ESB initially needed €24bn plus the money poured into Anglo and Irish Nationwide it then ballooned to €64bn.

XAU/GBP, 1 Year – (Bloomberg)

The Irish Independent states that this gigantic sum the equivalent of almost half of our economic output as measured by GNP, will not be enough.

In these uncertain times while our politicians are hopefully looking out for us honest taxpaying citizens, even though our services are being cut with every budget, we recommend 5-10% in physical “safe haven” gold to protect against systemic risk.