Courtesy of Pam Martens.
Mike Krauss, Founding Director of the Public Banking Institute
The Public Banking Institute has released a new video making serious claims, backed by graphs and government documents, that the largest Wall Street banks are an unsafe choice for the savings of moms, pops and public payrolls. Citing a December 10, 2012 jointly approved plan between the U.S. Federal Deposit Insurance Corporation (FDIC) and the Bank of England, which resides on the FDIC’s federal web site, the organization says depositors in the U.S. could see portions of their deposits confiscated, similar to what happened in Cyprus, should there be another Wall Street collapse as occurred in 2008.
The first question, of course, is why the U.S. government is negotiating its banking policy with the United Kingdom instead of the U.S. Congress. The obvious answer is that global banks, now allowed to troll the planet in search of the next high-flying derivatives trade, must harmonize their rules to pacify their foreign regulators.
Under the Dodd-Frank financial reform legislation that Congress passed in 2010, taxpayer money is barred from being used to bail out collapsing banks. That leaves few options for the FDIC should one of the largest Wall Street banks face a liquidity squeeze or a run on its assets, or, worse yet, if the contagion spread to the other three largest Wall Street banks.
The Cyprus situation is known as a bail-in, rather than a bail-out. The initial Cyprus plan was to give depositors a haircut of 6.75 to 9.9 percent on their deposits. The Parliament shot down that plan and eventually $132,000 of each depositor’s money was returned. In the largest bank, the Bank of Cyprus, depositors, including charities and small businesses, lost 47.5 percent of their savings over the $132,000 amount. Instead, they were given shares in the recapitalized bank and had their non-seized funds frozen in six, nine and 12-month time deposits with the high probability that the freeze would last longer.
The Cyprus situation brought with it the stark realization that depositors are creditors of a bank and face risk along with other creditors.
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