By Patrick A. Heller
Commentary on Precious Metals Prepared for CoinWeek.com….
Are you one of the people who still have funds in a Canadian bank account? Many Michigan residents, where I live, have such accounts because of the proximity of the Canadian border.
Well, if you are unlucky enough to be one of them, make sure you understand what is included in the Canadian government’s 2013 budget. You can access the full budget online at http://www.budget.gc.ca/2013/home-accueil-eng.html.
Pay attention to the fine print. On page 144 it reads, “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.”
It gets worse on page 145, where it reads, “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.”
The English translation of quote “the very rapid conversion of certain bank liabilities into regulatory capital” unquote means that if any major Canadian bank is failing it will take funds out of its customers’ checking and savings accounts and use those funds to bail out the shareholders of the bank. The budget does not give a nuts and bolts guideline as to which accounts will be affected or by how much. But the key guarantee is that at least some accounts will have at least some of the funds confiscated.
In the latest version of the Cyprus bailout agreement, customers with bank account balances below 100,000 euros, which is approximately $130,000, were largely unaffected. Unfortunately, Cypriot bank balances above 100,000 euros saw as much as 40% of the account balance confiscated. Canada might or might not adopt a similar seizure program.
Last week Eurozone officials admitted that confiscating funds from checking and savings accounts held by customers of faltering banks will be a standard part of any future bailouts. Canada is now about the twentieth nation to adopt the plan of confiscating bank account balances of customers of poorly managed large banks.
Now that you know these additional risks of leaving funds in a Canadian bank, how fast will those of you who have such accounts close them out?
Patrick A. Heller was honored with the American Numismatic Association 2012 Harry J. Forman Numismatic Dealer of the Year Award. He owns Liberty Coin Service in Lansing, Michigan and writes Liberty’s Outlook, a monthly newsletter on rare coins and precious metals subjects. Past newsletter issues can be viewed at http://www.libertycoinservice.com. Other commentaries are available at Numismaster (under “News & Articles) . His award-winning radio show “Things You ‘Know’ That Just Aren’t So, And Important News You Need To Know” can be heard at 8:45 AM Wednesday and Friday mornings on 1320-AM WILS in Lansing (which streams live and becomes part of the audio and text archives posted at http://www.1320wils.com
But couldn’t they also or instead be referring to holders of bonds or derivatives, rather than necessarily savings and checking accounts? Also, wouldn’t they be more likely to ask the shareholders of the bank to take a haircut before going after deposits?
Louis, you raise good points. In the “old days” the shareholders would get hit first, then the bondholders if needed. I suspect that some or all of these would still suffer some losses. However, the Eurozone officials were explicit that funds would be taken from savings and checking accounts, so I don’t expect Canada to pass up the same opportunity to avoid having to spend “taxpayer” funds.
Thanks, Patrick. I think that in the aftermath of what is happening in Cyprus, the Canadians would be extra cautious about doing anything that could lead to a bank run. Confiscation of deposits can easily become counter-productive for the banks.
The wording is nebulous and deliberately so, depending on whether you are an account holder or an investor. “certain bank liabilities” That could mean the calling in of loans, or confiscating accounts, or the bank owners assets, but since when is a bank account with money in it a “liability”. Is it not loans that are liabilities?
The thing is the purpose of Banks is about money flow, or the brokers of money. Getting the money from those with surplus, into the hands of those who need to borrow, at minimum risk to all parties. AND NOT TO SET UP ANY CASINO SCHEMES. So call in the markers, and let the borrowers refinance at a solvent bank. That would be business loans mortgages etc. But not stealing money, just recalling it. It is called refinancing. The problem was in the US there were no solvent banks to transfer loans to, but such a worded law might have enabled seizing the assets of the ones who own the bank, and who authorized the risky solvency transactions in the first place.
Actually no, Largephoto, your analysis on the assets and liabilities is bass ackwards, not the article’s.
To the bank, the cash is the asset (debit) and the deposits are liabilities (credit). Simple double entry bookeeping. All debits and credits must match. A depositor’s account balance is money “owed” to him by the bank.
The loans outstanding, on the other hand, are bank assets (debit), while the cash that left with the loan is the (credit) entry.
Whatever is an asset to YOU in a banking transaction is a liability to the bank, and vice versa.
Harper , who rules Canada after winning the last election with less than 40% of the vote, will do anything his masters, BIG BANKS tell him to do. They will not stop at taking the last $10 from a war widow or a hard working Canadian factory worker. To BIG BANKS these people are collateral damage in the WAR FOR BUCKS where anyone is fair game!!But I have an idea, make the top guys who haul in the fantastic salaries , salaries that their average depositor could never dream of, PAY!!! They are the one who caused the problem not the poor and workers. But we all know that the likely hood of that happening is as likely as Obama closing Gitmo or ending drone strikes. It ain’t gonna happen!!
So anyone who busts their ass to pay their way had better get ready to get kicked again!
Interesting article. Canada has the Canadian Deposit Insurance Corporation, similar to the U.S. F.D.I.C., which insures many bank accounts up to $100,000 Canadian. Since the purpose of deposit insurance is to protect against a bank failure, it seems unlikely that Canada would try to confiscate insured funds, unless many banks failed simultaneously in a major financial crash. As for depositors with accounts over the insured limit, it has always been understood that these funds are at risk in the event of a bank failure.
This proposal is disturbingly vague about details, but perhaps it would be handled like corporate bankruptcies where shareholders and owners of unsecured debt are wiped out first, then new stock is issued to holders of secured debt.
Canadian banks never suffered from the scope of problems visited upon US banks by your various governments.
No bail outs were required, not a single bank went under. Better lending practices since then tightened down even further go a long way to protecting our banking industry.
Pull your deposits out, be our guest. You won’t find a safer banking system anywhere on the planet to entrust your money, but you can find hundreds of failed US banks as a reminder that the grass isn’t greener to the south.