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Solvenian Banks Close To Collapse

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After Cyprus, next up looks to be Slovenia. Over the weekend there has been an official denial that the banks are about to collapse and we know what that means. If it does turn out to be the case, then another  “bail in” would cause panic right across the Euro area.

 

SloveniaTYE2012Are Slovenian depositors about to get Cyprus’d with a wealth/deposit confiscation?  If the intensity of the denials by Slovenian officials are any indication, a bank crisis is imminent for the tiny balkan nation. 
New Prime Minister Alenka Bratusek attempted to calm Slovenians over the weekend stating: We are absolutely no Cyprus. We don’t need help. All we need is time.
If and when the 2nd bail-in episode in the EU is attempted, expect all hell to break loose across the European banking system as depositors in Greece, Italy, Spain, Portugal, and even France realize that as DISELBOOM openly admitted, Cyprus really was the template for bank failures going forward.

As the AP reports, the official denial is in:


Slovenian officials have a message for the world: Don’t panic — we won’t be the next to fall.
The tiny European Union member is trying to convince its people and foreign investors that it won’t be the next in line for a banking system collapse and a messy international bailout.
“We are absolutely no Cyprus,” says new Slovenian Prime Minister Alenka Bratusek. “We don’t need help. All we need is time.”

Contrary to PM Bratusek’s claims, a recent report by the Organization for Economic Cooperation claims that the equity in Slovenian state banks has been “virtually wiped out.”:

The Alpine country’s banks have been on a lending spree for years, loaning money to unprofitable state companies or privileged officials who used the cash to buy the firms they ran, using the state assets as collateral.
Many such businesses have now collapsed or have huge debts. A recent report by the Organization for Economic Cooperation says that the equity of the state banks has been “virtually wiped out.” As much as 15 percent of all loans are now non-performing, the third-highest ratio in the eurozone, the Paris-based group said.

Which brings us to the important question: Exactly how much gold does Slovenia supposedly own as its reserves that are about to be confiscated by the ECB?  3.20 tons according to Slovenia’s latest report…all likely stored in London and already rehypothecated and leased to bullion banks 1,000 times over.

Que the MSM reports that Slovenia’s 3.2 tons of gold will need to be liquidated.

Source: SilverDoctors

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Reggie Middelton: Irish Banking System Is The Next Cyprus

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Reggie Middelton has analyized the Irish Banking system and his findings are disturbing. Since 2008 not only were debts hidden and assets double counted for the stress tests but banks have had to pledge all assets to access the TARGET2 system which is completely abnormal. All the while, silence from the Irish media. It looks more and more like Ireland is going to “pull a Cyprus”.

Ollie Rehn – Depositors To Take Hit If An EU Bank Fails Under Planned Law

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Hey, here’s a great idea, let’s make the Cyprus solution official. Ollie Rehn has disclosed that the EU plans to make it official in law for governments to steal your money when banks go bankrupt. Looks like the Dutch Finance Minister wasn’t alone in thinking this was a great idea after all.

(Reuters) – Big bank depositors could take a hit under planned European Union law if a bank fails, the EU’s economic affairs chief Olli Rehn said on Saturday, but noted that Cyprus’s bailout model was exceptional.

“Cyprus was a special case … but the upcoming directive assumes that investor and depositor liability will be carried out in case of a bank restructuring or a wind-down,” Rehn, the European Economic and Monetary Affairs Commissioner, said in a TV interview with Finland’s national broadcaster YLE.

“But there is a very clear hierarchy, at first the shareholders, then possibly the unprotected investments and deposits. However, the limit of 84,890 pounds is sacred, deposits smaller than that are always safe.”

The European Commission is currently drafting a directive on bank safety which would incorporate the issue of investor liability in member states’ legislation.

To secure a 10 billion euro EU/IMF bailout last month, Cyprus forced heavy losses on wealthier depositors. Initially it had also pledged to introduce a levy on deposits of less than 84,890 pounds – even though they are supposedly protected by state guarantees – before reneging in the face of widespread protests.

Source: Reuters

 

Looks Like European Banks Were Given the Nod Over A Year Before Cyprus Went Bust

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Core European banks made a lot of money leaving money on deposit in Cyprus. While locked in for a year a nice profit could be made at 4.9%. Bit of coincidence then that this money made it out in time suggesting that most of them knew over a year in advance of when the collapse would come. Charles Hugh Smith takes a look at what led up to the Cyprus Banking collapse.

Longtime correspondent David P. (proprietor of Market Daily Briefing) charted some very interesting data that enables us to follow the money–specifically, Eurozone money in the “foreign deposit sources” (deposits in Cyprus banks that originated from outside Cyprus).

It appears the key preliminary step of the Real Cyprus Template is that money-center banks in Germany and other “core” Eurozone nations pull their money out of the soon-to-implode “periphery” nation’s banks before the banking crisis is announced.

As David observed, “I think this explains a lot about something that has always puzzled me: why the delay in resolving Cyprus after the Greek haircut?”

Here is David’s explanation and two key charts:

“The Cyprus situation had been simmering for at least a year when in March of 2013 it finally broke; Cyprus had a week to take care of its banking situation or else face a cutoff of access to the eurosystem by the ECB. This brought matters to a head; the Cyprus Bail-In was finally settled upon, where uninsured depositors in the two largest banks in Cyprus took major haircuts, and must wait for return of their money until the assets of the banks are run down.

The banking problems in Cyprus had their roots in the Greek Sovereign Default, and were known by the general public for about a year prior to the recent default; a New York Times article dated April 11, 2012 lays out the particulars.

Looking at Cyprus bank security assets in data provided by the ECB, the problems were visible earlier – right after the first Greek haircut in mid 2011, and a second haircut finalized in early 2012. This was a 11 billion euro hole in a system with 100 billion in assets total, centered upon two banks that held half the deposits in the system.

Greek Crisis Timeline

Date Event
April 2010 Greek Sovereign Bonds Declared Junk
May 2010 110 Euro bailout, no haircut
July 2011 “Private Sector Involvement” decided at EU Summit
Oct 2011 130 Euro bailout, 53% face value haircut
Mar 2012 Haircuts take effect; actual haircut 85%

You can see the effects of the increasing haircuts in the chart below. The chart lists all types of bonds owned by all the banks on Cyprus. The red line is the important one. It shows “all off-island Eurozone Government Bonds.”

Put more simply, that red line represents Greek Government debt owned by the two banks on Cyprus that failed. It went from a 12 billion euro value in mid 2011, down to a 1 billion euro value in early 2012. That’s an 11 billion haircut – all due to the Greek Default.

So why did the eurozone wait so long to resolve the problematic Cypriot banks with their 11 billion euro hole that was clearly serious in the middle of 2011, and becoming blindingly obvious by 2012? Therein lies a story – it has to do with banking, and how banks make money. The explanation is a bit complicated, but bear with me.

Bank deposits are grouped into 3 primary categories: deposits from households, from corporations, and from other banks. Households and corporations typically have a long standing relationship with their bank; they only move their deposits slowly, and most of this sort of depositor uses time deposits to maximize their interest income. Deposits from other banks are what we might term “hot money.” They arrive quickly, and depart just as fast. But why would a bank deposit money with another bank? The simple explanation is: interest rate spreads.

Let’s imagine you ran a German bank, and you paid very low rates to your overnight depositors. You have a great deal of really cheap money on your hands. What are your options to make money? You can either loan money to German homeowners one by one, but there are only so many German homeowners, and they only want to borrow so much money. So after loaning all you can loan, you search the world to try and find another bank that is advertising high rates for deposit money, and you stumble on the banks in Cyprus.

Rate Deposit Type & Location
0.55% German Overnight Deposit
1.1% Cyprus Overnight Deposit
2.8% Cyprus Savings Deposit (1 year)
4.9% Cyprus Time Deposit (1 year)

Now then, if the Bank of Cyprus doesn’t go under, this is free money. How much are we talking about? Subtract the rate for the overnight deposit in Germany from the time deposit on Cyprus (4.9 – 0.55) then multiply by 60 billion euros. That ends up being 2.61 billion euros in profit. Per year! Cost? One guy at a computer hitting the “transfer” button on his keyboard in Dusseldorf!

This sure beats trying to loan money to a bunch of German homeowners one by one! But the key to this free money is, your bank must be able to get its money out of Cyprus prior to any trouble.

And the barrier to getting the bank’s money back is those Time Deposits (the deposits paying the most interest) are stuck in Cyprus for a year. So in order to avoid loss, you have to see into the future one year and stop rolling your bank’s time deposits one year before those Cyprus banks go under. Otherwise you will have collected that 4.9%, then suffered a 30-60% uninsured depositor haircut. And a haircut is not a good way to ensure your banker bonus for the year.

So with this hypothetical strategy in mind and being mindful of the dangers of default and the timeline of when things occurred, take a look at the following chart of “foreign deposit sources” (deposits in Cyprus banks that originated from outside Cyprus) and see for yourself how well each foreign participant did in anticipating the eventual banking system crisis.

 

  • Black: Eurozone [German & French] Banks
  • Red: Cyprus people and businesses
  • Blue: Cyprus Banks
  • Green: Banks outside the Eurozone
  • Orange: Russian “Mobsters” & Brits

Looking at the timeline, even as late as the end of 2011, when it was clear Greece would default and the banking regulator had to know the banks in Cyprus were doomed, the amount of Eurozone-bank derived deposits in Cyprus was over 20 billion euros, a good portion of which would be subject to massive losses if the Cyprus Template were to be applied at that moment.

[Note that 20 billion euros was – at that time – the same size as the “Russian Mobster” Money.]

But at that moment, as a result of the “collecting the spread” strategy, some big chunk of that money were likely in time deposits, unable to be withdrawn. That money couldn’t flee, not just yet.

But as time passed, those Eurozone bank deposits were slowly reduced down to 10 billion euros, a reduction of 50%. Presumably, as the time deposits expired, the money was brought back to the fatherland.

And then suddenly the President of Cyprus was informed he had 1 week to solve the banking situation that had been pending for more than a year.

In looking at the movement of capital prior to the default, we can give a grade to each participant, as a result of their apparent ability to assess the the danger to their deposits.

The clear winner: Eurozone Banks. Those guys were geniuses. They were the only participant to seriously reduce holdings prior to the default.

Participant Grade
Eurozone [German & French] Banks B+/A-: almost perfect
Cyprus People & Businesses F: completely unaware
Cyprus Banks C-: slightly more aware
Banks Outside Eurozone F: completely unaware
Russian Mobsters F: completely unaware

So it is expected (and a bit sad) that households and businesses don’t leave their banks readily, so its not surprising they stayed on board right up until the end.

What is fascinating to me is that the banks that were NOT in the eurozone clearly had no idea what was coming, and the banks actually ON Cyprus only had an inkling, and that only at the last minute. Given both the timing and the form of the Cyprus bank resolution was in the hands of the ECB, as well as French and German politicians, is this astounding ability of the Eurozone banks to avoid losses truly a surprise?

One question that might be asked is, if the Eurozone banks knew what was going to happen, why not withdraw all their money from the banks on Cyprus?

First, only half the banking deposits on Cyprus were involved in the bail-in. Perhaps the 10 billion euros in remaining Cyprus-EZ bank deposits are in other healthy Cyprus banks. Another explanation is that only a subset of the eurozone banks were well-connected enough to receive advance information.

One last point. Since now we understand how perfectly the well-connected eurozone banking establishment identifies issues in member nation’s banks, and how adept it is at avoiding uninsured depositor haircuts, we might find it useful to watch deposit flows of these Eurozone banks going forward.

They might well provide us insight as to where the next set of banking issues might arise, and perhaps more importantly, what the timing of these issues.”

Thank you, David, for sharing your finding with us. We can now see there are two Cyprus Templates:

1. The public-relations/propaganda model

2. The real one, that enables “core” eurozone banks to pull their deposits out of periphery banks before the deposit expropriation and capital controls kick in.

Why are we not surprised the entire charade and expropriation is rigged to benefit the core banks? For more on the core/periphery structure of the Eurozone, please read The E.U., Neofeudalism and the Neocolonial-Financialization Model (May 24, 2012)

To fully understand the Eurozone’s financial-debt crisis, we must dig through the artifice, obfuscation and propaganda to the real dynamics of Europe’s “new feudalism,” the Neocolonial-Financialization Model.

Source: OfTwoMinds

Sinclair – Something Has Western Central Banks Terrified

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Jim Sinclair gave an interview with King World News the state of Western Banks and how the Quadrillion of derivatives will eventually lead to more Cypriot solutions.  Eventually in a couple of years from now people will “realize that gold is for your savings, and currencies are for doing business”.

Eric King:  “Jim, Bloomberg had a story headlining on their site over the weekend claiming that depositors may lose as much as 60% on deposits in Cyprus.”

 Sinclair:  “This is all because of the one quadrillion dollars in derivatives that are in the financial system.  Six years ago the Bank for International Settlements (BIS) at that time reported that the amount of derivatives already outstanding exceeded one quadrillion dollars.  This number is unimaginable to most human beings.

But that is the actual number (over one quadrillion dollars).  They never should have released that number because it created a bit of panic.  Central planners immediately changed the accounting method for derivatives and this appeared to bring the total amount down to under $700 trillion.  So through the use of an accounting gimmick the total was reduced, but it hasn’t changed the frightening reality of what the world is facing….

“But the real size of derivatives outstanding is well over one quadrillion dollars, and something clearly has our central banks terrified right now.  We already know that Bernanke has led the US to significant amounts of QE, and the same is true of euro land.  Maybe they are now looking at what the real cost of the derivatives will be and saying to each other, ‘Nobody can create that much money.’

 What we may be seeing now is the fact that the central banks can no longer make the depositors whole.  They are hitting the wall.  This means that money is absolutely going to look to leave the financial system if indeed the final decision in Cyprus is to take money from deposits.  We will know the answer as to what has truly been decided in Cyprus at some point during the April 13 to April 15 time frame.”

 

Eric King:  “Jim, what you are saying here is that we are entering another phase where we can expect a dramatic increase in chaos as the one quadrillion dollars in derivatives causes more financial destruction?”

 

Sinclair:  “Absolutely.  When people say that the Cypriot banks lost because of being in Greek debt, what was one of the Greeks’ greatest sins?  They used over-the-counter derivatives in order to hide the real condition of their balance sheet.

 Depositor money, brokerage money, and clearing house money have been tangled up in the mountain of derivatives as the banks have used this cash to speculate in an attempt to make huge bonuses for bank executives.  Unfortunately, most have lost their ass.  This means that in many cases depositor money has already been wiped out.

 What do you think happens when Buffett reports that he made $10 billion in derivatives?  Somebody else lost $10 billion and it was most likely one financial institution.  There is no question that what we are seeing right now is not isolated to Cyprus.  It has happened everywhere, but is has been camouflaged by making the depositors and the banks whole.  What Cyprus will reveal is that losses do not stop with the bank’s capital.  Losses roar right through bank capital and take depositors’ money. 

 What people don’t realize is that the derivatives, especially the ones created between 1991 and 2007, are never-ending manufacturers of greater size of paper obligations because you have to put these additional items onto the derivative chain as the markets have certain events take place such as a downgrade of debt.  God help us when we have a meaningful downgrade of US debt.

 So, clearly our central banks are now very uncomfortable.  They are worried about something of significant size which has yet to be revealed to the public.  I guarantee you that whatever it is will have to do with the derivatives created between 1991 and 2007.”

 Sinclair also added:  “As money flees the financial system, one of the top items being purchased will be physical gold.  Right now the gold market is engaged in an enormous fight between physical and paper.  But two to three years from today people around the world will come to realize that gold is for your savings, and currencies are for doing business.

 There’s absolutely no question that when it’s confirmed that the depositors’ loss of money is not a tax, not a new way of making things whole, but in fact the actual disaster that the global banking system is currently in, you will have a move toward physical gold greater than anyone on this planet now believes is possible.  We will also witness the beginning of a level of fear and panic not seen in this world since 1929.”

Source: King World News

Iceland Vs Greece

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Sometimes a chart says it all. Its no wonder the lamestream media completely ignore the Icelandic success story because to follow would mean the end of the Euro. Taxpayers must be forced to prop it up at all costs so we know where Cyprus is heading judging by this chart.

Iceland Vs Greece – who made the right decision?

Canada Plans To Use Cyprus Model For Broken Banks – Rob The Depositors

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Looks like the Cypriot model of using depositors money to bailout insolvent banks is being adopted by Canada. New Zealand has similar plans and if you listen to the Dutch Finance Minister, eurozone countries willsimilarly being robbing your money when banks are finally allowed to announance they are bust.

SD has been alerted to an alarming provision that has been buried deep inside the official 2013 Canadian Budget that will result in depositor haircut bail-ins jumping to this side of the pond during the next bank crisis!
Titled ECONOMIC ACTION PLAN 2013 and tabled in the House of Commons by Minster of Finance James Flaherty on March 21st, the official 2013 Canadian budget contains an explicit provision that Canada will pursue the bail-in model for systemically important banks for future bank failures!

Depositor haircuts have just jumped to this side of the pond, effective the next bank crisis/ failure:
From Page 144:

“The Government also recognizes the need to manage the risks associated with systemically important banks—those banks whose distress or failure
could cause a disruption to the financial system and, in turn, negative impacts on the economy. This requires strong prudential oversight and a robust set of
options for resolving these institutions without the use of taxpayer funds, in the unlikely event that one becomes non-viable.”

Translated, Without the use of taxpayer funds means via depositor funds.

And the meat of the provision, from Page 145:

The Government proposes to implement a bail-in regime for systemically important banks. This regime will be designed to ensure that, in the unlikely event that a systemically important bank depletes its capital, the bank can be recapitalized and returned to viability through the very rapid conversion of certain bank liabilities into regulatory capital.
This will reduce risks for taxpayers. The Government will consult stakeholders on how best to implement a bail-in regime in Canada.
Implementation timelines will allow for a smooth transition for affected institutions, investors and other market participants…

Confiscating wealth from depositors will reduce risks for taxpayers???  Only those with 100% of their assets in physical gold and silver, or those Canadian depositors who are somehow not also taxpayers perhaps!
The bail-in provision in Canada’s 2013 budget can be found on pages 144,145:
http://www.budget.gc.ca/2013/doc/plan/budget2013-eng.pdf

Source: Silver Doctors

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