IF THERE IS one topic that I get asked questions on more than any other it is in the area of bank deposits, the Deposit Protection Guarantee Scheme (DGS) and Deposit Interest Rates. The first answer I always give is that we should worry about the areas we can control, and ignore things that we cannot control.
Reading and discussing economic and investment updates seems to have replaced past discussions on property values and everyone seems to have an opinion on the Bank Guarantee, Euro Stability, Yen Devaluation and German Government Bond Yield. In reality, the investment world is very simple, but investment managers, stockbrokers and economists make their living from selling fear, greed and excitement in equal doses!
€150 million is on deposit in Irish banks
To set the scene, there is over €150 billion on deposit in customer deposit accounts in Irish Banks as of February 2013. This figure has been steadily falling ever since the banking crisis began in the summer of 2008, but is still a significant figure.
At that time, the Irish Government introduced the Eligible Liabilities Guarantee (ELG) which covered all deposits and some bonds in Irish covered institutions, in their entirety. I won’t cover the merits or otherwise of this blanket guarantee, or whether they were forced into it by higher powers. However, the ELG did give Irish depositors some comfort that all of their hard earned savings were fully guaranteed by the Government, and at the end of the day, the European institutions.
This comfort was taken away at the end of March when the ELG expired and we reverted to the historic guarantee. This guarantees €100,000 per institution. Therefore any individual who has a deposit with a covered institution with a balance under €100,000 can take some amount of comfort in a government guarantee.
If you’re lucky to have over €100,000, you should protect it
This does cause some confusion for individuals with multiple accounts, as the guarantee is per ‘institution’ not per account. For example, if an individual is lucky enough to have a savings deposit with AIB for €100,000, and also a portion of their pension on deposit with AIB for another €150,000, these accounts are taken in aggregate and only €100,000 of the combined balance (€250,000) is guaranteed)
Most sensible individuals are now rightly worried about the security of their cash and how to mitigate all the risks associated with savings and investments at the moment.
While I don’t personally believe the European Institutions or the Irish Government will default on their guarantee, recent news in Cyprus has, at least partially, brought this possibility into focus. It is clear that spreading deposits around the guaranteed banks and keeping exposure to any one bank below €100,000 is the obvious way to reduce this risk to a minimum
The threat to people’s deposits
Since banks have had some success with recent bond issues and seem to be stabilising, deposit rates have fallen significantly. There were wide spread offers during the summer of 2012 for 5 Year Fixed Deposits earning over 5 per cent. The best rate on the market as of the time of writing is now 2.75 per cent (excluding specialist accounts with Danske Bank).
This return, after DIRT is deducted, will only just beat inflation and I see this as being a larger threat to people’s deposits over the long term than any short term default risk. However, inflation never gets the headlines and is an invidious threat which is hard to understand in the short term.
The only true way to protect you from risks is to be widely diversified across a whole range of asset classes. €150 billion on deposit in Ireland would indicate to me that we are over-invested in cash at the moment, just as we were over-invested in property and Irish Equities in 2007.
Diversifying is the only way to protect your cash
In the long run, well managed and well protected portfolios never have too much in any one asset class. I would recommend assistance from a professional (ideally from a Fee Based Financial Advisor) before deciding exactly how to invest in a widely diversified portfolio but it’s the only way to truly protect against all the threats to our wealth and wellbeing in the current economic environment.
My biggest fear for Irish Investors and any of those individuals sitting on large deposits is that as the interest rates keep falling, they will become more and more restless. Equity markets have been on a fairly steady bull run since the market bottom in March 2009. The US indices are at or above all-time highs and this strong short term past performance might tempt some of these depositors to finally leap back into the markets.
I don’t know what is going to happen, but I would be nervous about equity markets at their current valuations and can easily see a correction in the second half of 2013. As markets keep going up, the risks of this correction keep getting larger and I just hope Irish depositors don’t’ get caught out by the markets again.
In summary then, the only way to reduce risk is to diversify. At a minimum this diversification should be across all the guaranteed banks, and for funds with a long term focus, diversification into other asset classes is ideal.
David Quinn is the Managing Director of Investwise.ie. Established in 1988, Investwise is the trading name of Fitzpatrick Morris Financial Services Limited. With years of experience in the financial industry, they offer independent services and advice on a range of financial matters.
Bank Depositor “Haircuts”: Grand “Financial Theft” is the Money Market’s “New Normal”
On March 29, Cyprus Mail said banks opened Thursday. They did so amid calm.
Long lines queued. People waited patiently. A feared stampede didn’t materialize. Whether it’s the calm before the storm remains to be seen.
Looting Cypriot bank accounts reflects the new normal. It set a precedent. It did so for Europe. More on that below.
Grand theft reflects official policy. Money is made the old-fashioned way. It’s stolen. Nothing’s done to stop it. Corrupt politicians and regulators permit it. They do so for benefits they derive.
Scamming investors is commonplace. Goldman Sachs derisively calls them “muppets.”
MF Global’s CEO Jon Corzine formerly headed Goldman Sachs. He looted customer accounts. He did so brazenly.
He used client money to speculate. More went for internal purposes. Much went to cover debt obligations and losses. Top firm executives made millions. They did so at customers’ expense.
Financial reform accomplished nothing. Grand theft is institutionalized. Europe’s no different from America. Anything goes is policy.
Banks deposits were considered safe. No longer. Eurocrats changed things. Euro Group head Jeroen Dijsselbloem explained.
Expect more wealth extracted from depositors. Cyprus established a template. Bank accounts in other troubled economies aren’t safe.
“If there is a risk in a bank, our first question should be ‘Okay, what are you in the bank going to do about that,” he asked? “What can you do to recapitalize yourself?’ ”
“If the bank can’t do it, then we’ll talk to the shareholders and the bondholders. We’ll ask them to contribute in recapitalizing the bank, and if necessary the uninsured deposit holders.”
“The consequences may be that it’s the end of story, and that is an approach that I think, now that we are out of the heat of the crisis, we should take.”
In late February, ECB Executive Board member Benoit Coeure suggested raiding depositor accounts for bail-ins, saying:
“There needs to be an appropriate burden-sharing….because we need to achieve debt sustainability.”
At the time, he suggested not doing it across the board. Whether he meant it isn’t clear.
He added that he doesn’t “pre-judge any instruments because the vocabulary matters, and there are many ways to achieve burden-sharing.”
It bears repeating. Grand theft is official policy. Even bank accounts aren’t safe.
Market analyst Marc Faber believes “governments one day (will) take away 20 – 30% of (his) wealth.” There’s no place to hide.
German Finance Minister Wolfgang Schaeuble proposed a 40% haircut on all deposits. So does IMF head Christine Lagarde.
Cypriot Finance Minister Michalis Sarris said large uninsured Laiki Bank depositors could lose up to 80% of their money. Other European depositors race similar risks. So do people elsewhere.
Some may lose everything. It’s the new normal. Personal savings are up for grabs. Bank bailouts will be borne on the backs of ordinary people.
Think it can’t happen here? Think again. There’s no place to hide. Ellen Brown explained. Banks legally own depositor funds, she said.
“Our money becomes the bank’s, and we become unsecured creditors holding IOUs or promises to pay.”
Banks once repaid depositors on demand. A joint December 10, 2012 FDIC-Bank of England (BOE) paper changed things. Plans to loot customer accounts were made earlier.
The Bank for International Settlements originated them. It’s the privately owned central bank for central bankers. Major ones have final say.
Looting depositor accounts is policy. Cyprus isn’t a one-off. Guaranteed insured deposits don’t matter. They’re up for grabs like all others. It’ll be done clever ways or outright.
Brown said the FCIC-BOE plan involves converting deposits (IOU promises to pay) into bank equity. They get our money. We get bank stock.
Ready cash on demand is gone. Whether it’s ever returned, who knows. Take the money and run looks more than ever like policy. Depositors anywhere may be hung out to dry.
Even gold and silver in safety deposit boxes aren’t safe. Not in America. Homeland Security told banks in writing. It may inspect their contents on demand.
Under Patriot Act provisions, it may seize them with no warrant. It can do so anywhere. Banco de Mattress isn’t safe.
Investor Jim Rogers said “run for the hills now. I’m doing it.” Cyprus is no one-off.
“I want to make sure that I don’t get trapped,” he said. “Think of all the poor souls that just thought they had a simple bank account.”
“Now they find out that they are making a ‘contribution’ to the stability of Cyprus. The gall of these politicians.”
“If you’re going to listen to government, you’re going to go bankrupt very quickly.”
“I, for one, am making sure I don’t have too much money in any one specific bank account anywhere in the world, because now there is a precedent,”
“The IMF has said ‘sure, loot the bank accounts. The EU has said ‘loot the bank accounts, so you can be sure that other countries when problems come, are going to say, ‘Well, it’s condoned by the EU. It’s condoned by the IMF. So let’s do it too.’ ”
The Daily Bell asked “What Is The REAL Euro End Game? It is time to apply the free-market to bank depositors.”
Strategy involves shifting responsibility from taxpayers to depositors. Things ahead won’t be the same. Eurocrats’ policy is wrongheaded. They’re deepening crisis conditions, not alleviating them.
They believe achieving “full-on political union” depends on it. Their well-documented comments reflect it.
“….Cyprus shock and subsequent statements are not only deliberate, but have contributed to spreading uncertainty throughout Europe.”
“Now people no longer trust their banks, contributing to their destabilization.”
“If you have a bank crisis, the last thing you want to do is further destabilize trust and confidence in the system. But Brussels Eurocrats have done just that.”
“Don’t think it was a mistake. If one accepts that line of thinking, the ramifications are serious and deep from a sociopolitical, political and investment standpoint.”
The Economic Collapse blog said global elites plan to loot bank accounts. Don’t be surprised when they steal yours.
“They are already very clearly telling you that they are going to do it.” Your money is theirs. It’s up for grabs on demand.
People put money in banks for safety. Removing it “jeopardize(s) the entire system.” Cyprus is a tip of a giant iceberg. Major global banks are highly leveraged. Many are insolvent.
When their bets pay off, they win. When they don’t, we pay. Wealth confiscation is now policy. Commerzbank chief economist Joerg Kraemer urges a “tax rate of 15 percent on (Italian) financial assets.”
It’s “probably enough to push (government) debt below the critical level of 100 percent of gross domestic product,” he said.
New Zealand Finance Minister Bill English proposed across the board depositor “haircut(s)” in case of major bank failures.
Britain’s Daily Mail headlined “One of the nastiest and most immoral political acts in modern times,” saying:
“People who rob old ladies in the street, or hold up security vans, are branded as thieves.”
“Yet when Germany presides over a heist of billions of pounds from private savers’ Cyprus bank accounts, to ‘save the euro’ for the hundredth time, this is claimed as high statesmanship.”
“It is nothing of the sort….It has struck fear into the hearts of hundreds of millions of European citizens, because it establishes a dire precedent.
If Eurocrats can loot Cyprus, why not anywhere.
“This is the most brutal display since 2008 of how far the euro-committed nations are willing to go to save the tottering single currency.”
“It shows that the zone’s crisis will run and run to the grievous disadvantage” of most everyone.
“Surely the euro cannot long survive by such anti-democratic means. It certainly does not deserve to.”
Graham Summers says “Europe is out of options and out of money.” It’s “totally and completely bust.”
It’s banks are highly leveraged. They can’t raise capital “because no one in their right mind wants to invest in them….”
“European nations are bankrupt because AGAIN no one in their right mind wants to buy their bonds UNLESS they believe they can dump their investments on the ECB at a later date. Who is the greater fool there?”
Europe isn’t fixed because enough capital isn’t there to do it. “Europe and its alleged backstops are out of money. This includes Germany, the ECB, and the mega-bailout funds such as the ESM (European Stability Mechanism).”
The ECB is “chock full of garbage debts.” It’s insolvent. It can print money, “but once the BIG collateral call hits, (it’s) useless because (what’s needed) would implode the system.”
“What could go wrong?” Virtually anything. “It’s only a matter of time before (crisis conditions reach) hyperdrive, and we have an event even worse than 2008.”
Zero Hedge says Russia’s “next in line to restrict cash transactions. (They’re) taking a page from the Europeans’ book.”
Russia Beyond the Headlines said “Russia to ban cash transactions over $10,000.” It plans to “slash the amount of cash in domestic trade.”
It may do so by 2015. It’s “expected to boost” bank reserves “and put a damper on (its) shadow economy. However, the middle class will most likely end up having to pay the price for the scheme.”
According to Zero Hedge, leaders realize that “limits of fiscal and monetary policy have been reached.”
They’re “now changing rules, limiting freedom, and (instituting) outright confiscation (as) the only way to maintain a status quo.”
Doing so reflects predatory capitalism’s failure. It’s a house of cards. It’s heading perhaps for eventual collapse. At risk is whether it takes humanity with it when it does.
Stephen Lendman lives in Chicago. He can be reached at firstname.lastname@example.org.
His new book is titled “Banker Occupation: Waging Financial War on Humanity.”
His new book is titled “How Wall Street Fleeces America: Privatized Banking, Government Collusion and Class War”
What does ‘Euro’ mean?
Is a euro in a Cypriot bank, locked down by withdrawal limits and capital controls, the same as a euro in an Irish or French bank? Is a euro sitting in, say, a payroll account in Laiki with a balance of more than €100,000 (and subject to an unspecified “haircut” on Thursday) the same an “Irish euro”?
They’re both euro, both promises to pay the bearer, but honestly, do you have a preference? Of course you do. You’d prefer your money to be outside Cyprus. You’d prefer an Irish euro to a Cypriot one. So they’re not the same. Do we even have a single currency now, then? What does the Euro mean?
And how did this happen? At least in part, it happened because all the finance ministers of the Eurozone sat around earlier this month and let the Cypriots leave the room with a proposal to make depositors pay for bank losses, including insured depositors with balances of less than €100,000. They rowed back on that part, but you can’t undo the damage of their having taken it seriously to begin with. Imagine a snowed-in family just once agreeing “if we get really hungry, we can eat the rabbit”. You can take that back all you like – everybody knows the rabbit’s not safe any more. He’s not just a pet, he’s protein. Depositors aren’t just protected customers now, they’re also a source of money to save the bank.
We sat back and let that happen – all the Eurozone countries did. We let deposits in Cyprus undergo that subtle shift in meaning. We let their banks be closed for ages, with devastating impact on small firms and families. We let their tax rate be changed. We let them hang out there, hoping it would save us, the rest of this uneasy union. Where does that leave solidarity, in this European Project under our presidency?
Just now, you’d prefer an Irish euro to a Cypriot one. Remember that feeling, because, as Martin Niemöller might have written were he more interested in money, and living in more peaceful times, “First they came for the Cypriots …”
While Ireland hums and haws over bank debt we learn from Transport Minister Leo Varadkar that “difficulties” remain in the talks with the ECB on refinancing the bailout, though he remains hopeful a solution will be found. I would guess that eventually a deal will be made that will be nothing more than a dressed up comical illusion.
So we are now refinancing the bailout, does this mean we pay double?
In the meantime we hear
Iceland’s refusal to repay depositors legal
Iceland was within its rights not to repay billions of euro to the United Kingdom and Dutch governments, who were forced to compensate depositors after an Icelandic bank collapsed at the height of the global financial crisis, a court has ruled.
The decision was taken by the court of the European Free Trade Association (Efta), which ruled that Iceland had not broken depositor protection laws by refusing to compensate people who had invested in Landsbanki’s Icesave online banking accounts.
What a shame the Government of Ireland lack the courage of of our friends in Iceland.
Why do the lack the courage …in simple terms the ECB says pay up or else…No more funding
Irish bank deposits up 0.7% in August
In July, deposits were falling at an annual rate of 0.8% but last month deposits increased by 0.7% compared to August 2011.
Private sector deposits from outside Ireland grew by €712m during the month.
Even though banks appear to be slowly, repairing their balance sheets this seems to be happening at the expense of any new lending.
The volume of retail sales rose by 0.4% in August compared to July, while there was an annual decrease of 0.6%.
The CSO said what when car sales are excluded, the volume of retail sales rose by 0.1% in August from July, while there was an annual increase of 0.4%.
Breaking down the figures, they show that sales in bars rose by 3.2% in August, while sales of hardware, paints, and glass increased by 2.1%.
The largest decreases were seen in sales of furniture and lighting (3.5%), clothing and footwear (2.3%) and fuel (2.2%).