Greek bank depositors in line for a 'haircut'

Banking sources in Greece are reporting that any plan to recapitalize the teetering banking system would include a "bail in" of up to 30% of deposits over 8,000 euros.

A similar plan was initiated in Cyprus in 2013 when the banks were in danger of collapsing. But the bail in there affected deposits of over 100,000 euros. The Greek plan would affect far smaller depositors.

Financial Times:

It would be implemented as part of a recapitalisation of Greek banks that would be agreed with the country’s creditors — the European Commission, International Monetary Fund and European Central Bank.

“It [the haircut] would take place in the context of an overall restructuring of the bank sector once Greece is back in a bailout programme,” said one person following the issue. “This is not something that is going to happen immediately.”

Eurozone officials said no decision had been taken to wind up any Greek banks or initiate a bail-in of depositors, a process that would be started by the ECB declaring the banks insolvent or pulling emergency loans.

Greece’s banks have been closed since Monday, when capital controls were imposed to prevent a bank run following the leftwing Syriza-led government’s call for a referendum on a bailout plan it had earlier rejected. Greece’s highest court rejected an appeal by two citizens on Friday who had asked for the referendum to be declared unconstitutional.

Depositors can withdraw only €60 a day from bank ATM cash machines, while requests to transfer funds abroad have to be approved by a special finance ministry committee in co-operation with the Greek central bank.

Two senior Athens bankers said the country had only enough cash to keep ATMs supplied until the middle of next week. This followed the ECB’s decision this week not to increase Greece’s allocation of emergency liquidity assistance after the bailout programme ended on June 30.

Greek deposits are guaranteed up to 100,000 euros. But the government's version of the FDIC only has 3 billion euros in the kitty, far short of what would be needed in the event of a bank meltdown. Hence, the plan for the government to reach into ordinary Greek citizen's bank accounts and remove up to 30%. Presumably, this would include savings, checking, and money market accounts - perhaps even mutual funds managed by the banks.

Absconding with 30% of the life savings of citizens - or operating funds for small businesses - is about as bad as it gets. The obvious question is; can it happen here?

Why not? Most politicians on the left do not see your cash deposited in the bank as belonging to you. It belongs to government and government tells you how much you can keep. If there is going to be another financial crisis - and many experts are predicting one - you can bet the government will attempt this gambit in order to bail out the big banks who are still recklessly exposing themselves to failure.

Most government and independent analysts are playing down the idea that what is happening in Greece can happen anywhere else in the EU or in the US. They point to far more diversified economies and stronger regulation as a backstop against experiencing the Greek nightmare.

But they're whistling past the graveyard. We may be seeing our near future being played out on the streets of Athens and in the halls of power in Brussels. This makes it only prudent to prepare for the worst.

 

Banking sources in Greece are reporting that any plan to recapitalize the teetering banking system would include a "bail in" of up to 30% of deposits over 8,000 euros.

A similar plan was initiated in Cyprus in 2013 when the banks were in danger of collapsing. But the bail in there affected deposits of over 100,000 euros. The Greek plan would affect far smaller depositors.

Financial Times:

It would be implemented as part of a recapitalisation of Greek banks that would be agreed with the country’s creditors — the European Commission, International Monetary Fund and European Central Bank.

“It [the haircut] would take place in the context of an overall restructuring of the bank sector once Greece is back in a bailout programme,” said one person following the issue. “This is not something that is going to happen immediately.”

Eurozone officials said no decision had been taken to wind up any Greek banks or initiate a bail-in of depositors, a process that would be started by the ECB declaring the banks insolvent or pulling emergency loans.

Greece’s banks have been closed since Monday, when capital controls were imposed to prevent a bank run following the leftwing Syriza-led government’s call for a referendum on a bailout plan it had earlier rejected. Greece’s highest court rejected an appeal by two citizens on Friday who had asked for the referendum to be declared unconstitutional.

Depositors can withdraw only €60 a day from bank ATM cash machines, while requests to transfer funds abroad have to be approved by a special finance ministry committee in co-operation with the Greek central bank.

Two senior Athens bankers said the country had only enough cash to keep ATMs supplied until the middle of next week. This followed the ECB’s decision this week not to increase Greece’s allocation of emergency liquidity assistance after the bailout programme ended on June 30.

Greek deposits are guaranteed up to 100,000 euros. But the government's version of the FDIC only has 3 billion euros in the kitty, far short of what would be needed in the event of a bank meltdown. Hence, the plan for the government to reach into ordinary Greek citizen's bank accounts and remove up to 30%. Presumably, this would include savings, checking, and money market accounts - perhaps even mutual funds managed by the banks.

Absconding with 30% of the life savings of citizens - or operating funds for small businesses - is about as bad as it gets. The obvious question is; can it happen here?

Why not? Most politicians on the left do not see your cash deposited in the bank as belonging to you. It belongs to government and government tells you how much you can keep. If there is going to be another financial crisis - and many experts are predicting one - you can bet the government will attempt this gambit in order to bail out the big banks who are still recklessly exposing themselves to failure.

Most government and independent analysts are playing down the idea that what is happening in Greece can happen anywhere else in the EU or in the US. They point to far more diversified economies and stronger regulation as a backstop against experiencing the Greek nightmare.

But they're whistling past the graveyard. We may be seeing our near future being played out on the streets of Athens and in the halls of power in Brussels. This makes it only prudent to prepare for the worst.