UK Bail-in Powers Implementation

Courtesy of Gov.uk, because they care:

1. Introduction

The Special Resolution Regime (SRR) established in the Banking Act 2009 (“the Banking Act”) confers a number of resolution powers on the Bank of England and HM Treasury. The Financial Services (Banking Reform) Act 2013 (the 2013 Act) confers on the Bank of England a further option for the resolution for banks, building societies, investment firms, and certain banking group companies: the bail-in stabilisation option.

Since the financial crisis, a wide-ranging programme of financial sector reform has been underway at domestic, European and international levels. The government set up the Independent Commission on Banking (ICB), charged with considering structural and related non-structural reforms to the UK banking sector to promote financial stability and competition. It reported in 2011, and one of its key recommendations was the introduction of a bail-in tool. Bail-in powers were also recommended by the Parliamentary Commission on Banking Standards (PCBS) in its June 2013 report. The Financial Stability Board’s (FSB), ‘Key Attributes of Effective Resolution Regimes’ – endorsed by the G20 – has recommended that resolution regimes put in place a bail-in tool in order to improve the toolkit for dealing with the failure of large, globally systemic banks.

Bail-in involves shareholders of a failing institution being divested of their shares, and creditors of the institution having their claims cancelled or reduced to the extent necessary to restore the institution to financial viability. The shares can then be transferred to affected creditors, as appropriate, to provide compensation. Alternatively, where a suitable purchaser is identified, the shares may be transferred to them, with the creditors instead receiving, where appropriate, compensation in some other form. Continue reading

Russell Napier Declares November 16, 2014 The Day Money Dies

Courtesy of Russell Napier @ ERIC:

It is with regret and sadness we announce the death of money on November 16th 2014 in Brisbane, Australia

‘A mark, a yen, a buck, or a pound
A buck or a pound
A buck or a pound
Is all that makes the world go ’round;
That clinking, clanking sound
Can make the world go ’round.’

“Money” from Cabaret by Kander & Ebb

In the musical Cabaret, Sally Bowles and the Emcee sing about money from the perspective of those witnessing its collapse in value in real terms in the great German hyperinflation of 1923.

Less than a decade later, and a continent away, a young lawyer from Youngstown, Ohio noted on July 25th 1932 how money’s value could also fall in nominal terms:

“A considerable traffic has grown up in Youngstown in purchase and sale at a discount of Pass-Books on the Dollar Bank, City Trust and Home Savings Banks. Prices vary from 60% to 70% cash. All of these banks are now open but are not paying out funds.”
The Great Depression – A Diary: Benjamin Roth (first published 2009)

In Youngstown the bank deposit, an asset previously referred to as “money”, had fallen by up to 40% relative to the value of cash. The G20 announcement in Brisbane on November 16th will formalize a “bail in” for large-scale depositors raising the spectre that their deposits are, as many were in 1932, worth less than banknotes. It will be very clear that the value of bank deposits can fall in nominal terms.

On Sunday in Brisbane the G20 will announce that bank deposits are just part of commercial banks’ capital structure, and also that they are far from the most senior portion of that structure. With deposits then subjected to a decline in nominal value following a bank failure, it is self-evident that a bank deposit is no longer money in the way a banknote is. If a banknote cannot be subjected to a decline in nominal value, we need to ask whether banknotes can act as a superior store of value than bank deposits? If that is the case, will some investors prefer banknotes to bank deposits as a form of savings? Such a change in preference is known as a “bank run.”

Each country will introduce its own legislation to effect the ‘ bail-in’ agreed by the G20 this coming weekend. The consultation document from the UK’s Treasury lists the following bank creditors who will rank ABOVE depositors in a ‘failing’ financial institution: Continue reading

And The Gold Bank Appears: following Fekete, China is embracing New Austrian Economics as the foundation for the new International Monetary System

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Courtesy of Conscience Sociale blog:

You might already know that China aims for Official Gold Reserves at 8500 tonnes.

But you surely not know about the golden treasure embedded in the original opinion editorial by Song Xin, General Manager of the China National Gold Group Corporation, Party Secretary and President of the China Gold Association, 07/30/2014.

He spoke about the strategic role of gold, and new institutions needed for gold circulation, precisely in the logic based on New Austrian Economics that I’m using in my articles on Conscience Sociale and elsewhere since 2011. [articles in english ; en français].

His sentences about the GOLD BANK is truly one of strong evidence of what I called the ‘Grande Renaissance’ which will transform the whole world in the following decades (another one is the growing interest in Agile Democracy).

Chosen excerpts of Xin’s editorial [Translation by BullionStar], with emphasis mine :

“For China, the strategic mission of gold lies in the support of RMB internationalization, and so let China become a world economic power and make sure that the “China Dream” is realized.

Gold is the only thing carrying the dual mantels of a commodity as well as a monetary substance. It’s both a very ‘honest’ asset and forms the very material basis for modern fiat currencies. Historically, gold has played an irreplaceable role in responses to financial crises and wars as it comes to protecting a country’s economic security. Because of this, gold carries with it an honored and divine-given strategic mission in the ascend of the Chinese people and the pursuit of the “China Dream”.

The Important Function Of Gold.

Gold is the world’s only monetary asset that has no counter party risk, and is the only cross-nation, cross-language, cross-ethnicity, cross-religion and cross-culture globally recognized monetary asset. Gold is the last protection for a country’s economic security; it safeguards a nations sovereignty in times of crises. […] Continue reading