Last week Reuters reported:
Regulators must equip themselves with tools such as “bail-in” bonds to deal quickly with a failed clearing house for stocks, bonds or derivatives without having to call on taxpayers for cash, the G20’s risk watchdog said on Thursday.
The Financial Stability Board (FSB) said its new standard, which builds on previous guidance, requires that adequate liquidity, loss-absorbing, and recapitalisation resources and tools are available to maintain the continuity of a clearer’s critical functions, and mitigate adverse effects on financial stability should a shutdown become necessary.
It sets out seven resources and tools that regulators are required to pick from, such as “bail-in” bonds issued by clearers that can be written down to plug losses, resolution funds, cash calls during resolution, and equity in a first-loss position in resolution.
Regulators will have to state publicly which tools they have selected. Laws could need changing or introducing in some countries to give regulators access to such tools.
“Temporary public funding for liquidity … should be relied on only as a last resort,” the FSB said.
Prior to this news, the Federal Deposit Insurance Corporation (FDIC) claimed in April that they are ready should a major superbank fail in the U.S.
The ability of the FDIC and other regulatory authorities to manage the orderly resolution of large, complex financial institutions remains foundational to U.S. financial stability.
An orderly resolution is far preferable to the alternatives, particularly resorting to taxpayer support to prop up a failed institution or to bailing out investors and creditors. With this paper we are reaffirming that, should the need arise, the FDIC is prepared to apply the resolution framework that the FDIC and many other regulatory authorities in the U.S. and around the world have worked so hard to develop.
Chairman Martin J. Gruenberg said
In March, Federal Reserve Chair Jerome Powell acknowledged that there will be a number of bank failures due to overexposure to commercial real estate, and have a shortlist of those institutions.
You know this is a problem that we’ll be working on for years more I’m sure. There will be bank failures, but this is not the big banks. If you look at the very big banks it’s not a first order issue for any of the of the very large banks. It’s more, you know, smaller and medium-sized banks that have these issues.
We’re working with them, we’re getting through it – I think it’s manageable, is the word I would use, but it’s you know it’s a very active thing for us and the other regulators, and it will be for some time.
Powell said during a Senate Finance Committee hearing
Still, Powell tried to downplay the risks of this and claimed the major institutions were safe. However, the FDIC that same day Powell made that speech said the larger banks have just as much risk of failing. “As a result, the noncurrent rate for nonowner occupied CRE loans is now at its highest level since first quarter of 2014, driven by portfolios at the largest banks,” Gruenberg said at the time.
AUTHOR COMMENTARY
This is, once again, further affirmation that you need to get your money out of the banks: put it under your mattress, a safe in your home, whatever, just out of the banks. Only keep what you need there to keep a running balance, and to pay bills and make purchases online, and perhaps several different accounts across multiple banks, or perhaps consider a credit union, though those are certainly not fool-proof either.
Proverbs 22:3 A prudent man foreseeth the evil, and hideth himself: but the simple pass on, and are punished.
The media is making it clear that as more of these banks start to topple later this year and next there will be bail-ins. This means the money, your money, that is on the books will be used to pay-off the creditors and lenders.
It is no longer a secret, the word is out in the mainstream: there will be banks going bust:
Janet Yellen made it clear a year ago during the fallout of Silicon Valley Bank that small banks will be forced to eat sand, but larger institutions will be bailed-out. SEE: Treasurer Janet Yellen Admits That Favored Banks Will Be Bailed-Out But Smaller Ones Will Be Left To Die
From the chatter I have been hearing and seeing, it appears Bank of America might be made the sacrificial lamb this time around, just as Lehman Brothers was in 2008.
[7] Who goeth a warfare any time at his own charges? who planteth a vineyard, and eateth not of the fruit thereof? or who feedeth a flock, and eateth not of the milk of the flock? [8] Say I these things as a man? or saith not the law the same also? [9] For it is written in the law of Moses, Thou shalt not muzzle the mouth of the ox that treadeth out the corn. Doth God take care for oxen? [10] Or saith he it altogether for our sakes? For our sakes, no doubt, this is written: that he that ploweth should plow in hope; and that he that thresheth in hope should be partaker of his hope. (1 Corinthians 9:7-10).
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100% Agree!