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Think Your Bank Deposits Will Always Be 100 Percent Guaranteed By the FDIC? Think Again.

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I think this is a huge story, and it takes very little to tell it. These are the basics on deposit confiscation and how we got there:-->

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Kit B (276)
Wednesday April 3, 2013, 3:54 pm
(Photo: mccmicb / Flickr)

I think this is a huge story, and it takes very little to tell it. These are the basics on deposit confiscation and how we got there:

■ You know that the EU-forced solution to the failure of banks in Cyprus is to require the Cypriot government to confiscate (“tax”) deposits. That news is everywhere you look; it’s not in dispute or doubt. The latest has depositor losses at 60% due to the bailout-related “one-time” tax.

■ “Confiscating deposits” is exactly the opposite of “insuring deposits,” which is what is required in the EU, and also offered by the FDIC (as the ads say, “your deposits are insured up to $250,000″).

■ The next monster taxpayer-financed bank bailout could spark a revolution. Find me anyone who isn’t a friend of Big Money who doesn’t hate the Bush-Obama bailout. Dem, Republican, Libertarian, frog-on-a-rock — no one liked the bailout.

■ This takes a taxpayer-financed bailout off the table as the next way to make bankers whole when they stumble.

■ But bankers are going to stumble soon, and big. The derivatives market is huge, and they’re aggressively reversing the tepid Dodd-Frank derivatives regulations as we speak. Of course, friends-of-big-banks in Congress are helping (that’s you, Ann Kuster).

■ So the next big bailout (which is coming) will have to come from somewhere else.

Guess where that “somewhere else” is? Deposits.

Nations have already started to institute rules that enable deposit confiscation

There’s an international move by national governments to write regulations that permit deposit confiscation in the case of bank failure. This is exactly the Cyprus model, and if the news stories are correct, confiscating deposits was being considered or enabled prior to Cyprus bank-failures.

New Zealand (h/t a very alert reader last week; my emphasis and paragraphing):

National [Government] planning Cyprus-style solution for New Zealand

The National Government are pushing a Cyprus-style solution to bank failure in New Zealand which will see small depositors lose some of their savings to fund big bank bailouts, the Green Party said today.

Open Bank Resolution (OBR) is Finance Minister Bill English’s favoured option dealing with a major bank failure. If a bank fails under OBR, all depositors will have their savings reduced overnight to fund the bank’s bail out.

“Bill English is proposing a Cyprus-style solution for managing bank failure here in New Zealand – a solution that will see small depositors lose some of their savings to fund big bank bailouts,” said Green Party Co-leader Dr Russel Norman. “The Reserve Bank is in the final stages of implementing a system of managing bank failure called Open Bank Resolution. The scheme will put all bank depositors on the hook for bailing out their bank.

“Depositors will overnight have their savings shaved by the amount needed to keep the bank afloat. …”

Here’s what the New Zealand government says about “Open Bank Resolution” (my emphasis):

What is an OBR?

The Open Bank Resolution policy is a tool for responding to a bank failure. It allows the bank to be open for full-scale or limited business on the next business day after being placed under statutory management (as a result of, for example, an insolvency event). This means that customers will be able to gain full or partial access to their accounts and other bank services, whilst an appropriate long-term solution to the bank’s failure is identified. …

Why should depositors bail-out banks?

The OBR policy is designed to ensure that first losses are borne by the bank’s existing shareholders. In addition, a portion of depositors’ and other unsecured creditors’ funds will be frozen to bear any remaining losses. To the extent that these funds are not required to cover losses as more detailed assessment of the position of the bank is completed, these funds will be released to depositors. At a high level, this outcome replicates the outcome that would apply in the event that a failed bank was liquidated. The primary advantage of the OBR scheme, however, is that depositors would have access to a large proportion of their balances throughout the process. This contrasts with what would happen under a normal liquidation, where depositors might not have access to any of their funds for a significant period.

Why aren’t deposits guaranteed?

During the recent global financial crisis the government took the decision to put in place a temporary guarantee on retail deposits. On 11 March 2011 the Minister of Finance announced that further guarantees would not be provided following the expiry of the existing scheme. Furthermore, the Minister ruled out the possibility of introducing a compulsory deposit insurance scheme.

Read the rest if you like. That’s a government of New Zealand publication.

Deposit confiscation is being planned in the U.S. and the U.K.

Just as the New Zealand plan has been in process for a while, so is a similar plan in the U.S. and the U.K. This piece is making the rounds and making waves. It should (again, my emphasis; h/t a must-read DownWithTyranny piece):

It Can Happen Here: The Confiscation Scheme Planned for US and UK Depositors

Posted on March 28, 2013 by Ellen Brown

Confiscating the customer deposits in Cyprus banks, it seems, was not a one-off, desperate idea of a few Eurozone “troika” officials scrambling to salvage their balance sheets. A joint paper by the US Federal Deposit Insurance Corporation and the Bank of England dated December 10, 2012, shows that these plans have been long in the making; that they originated with the G20 Financial Stability Board in Basel, Switzerland (discussed earlier here); and that the result will be to deliver clear title to the banks of depositor funds. …

Although few depositors realize it, legally the bank owns the depositor’s funds as soon as they are put in the bank. Our money becomes the bank’s, and we become unsecured creditors holding IOUs or promises to pay. (See here and here.) But until now the bank has been obligated to pay the money back on demand in the form of cash. Under the FDIC-BOE plan, our IOUs will be converted into “bank equity.” The bank will get the money and we will get stock in the bank. With any luck we may be able to sell the stock to someone else, but when and at what price? Most people keep a deposit account so they can have ready cash to pay the bills.

The 15-page FDIC-BOE document is called “Resolving Globally Active, Systemically Important, Financial Institutions.” It begins by explaining that the 2008 banking crisis has made it clear that some other way besides taxpayer bailouts is needed to maintain “financial stability.” Evidently [the writers anticipate] that the next financial collapse will be on a grander scale than either the taxpayers or Congress is willing to underwrite …

No exception is indicated for “insured deposits” in the U.S., meaning those under $250,000, the deposits we thought were protected by FDIC insurance. This can hardly be an oversight, since it is the FDIC that is issuing the directive. …

December 10, 2012 was pre-Cyprus. Deposit-confiscation wasn’t something cooked up on the fly. It’s been in the works for a while, by all the international Bigs. Note that the source of the negotiations is “the G20 Financial Stability Board in Basel, Switzerland.” This is indeed international.

Bottom line

This proves three things, I think:

Major governments exist, in part, to make sure no banker takes a loss anywhere in the world, regardless of risky behavior on the part of the banks. The world and its governments serve the bankers.

The next banking crisis is anticipated to dwarf the last one, and the Bigs have been making plans to bail it out with depositor funds, not taxpayer funds. Cyprus is just the first implementation.

Loss of deposit insurance is coming to the U.S.

The Rich vs. the Rest. "All your money are belong to us" indeed. The outcome has bloodshed written all over it.

[Update: Title slightly modified to reflect that outside of Cyprus, these are just plans, at least so far.]

Darren Woolsey (218)
Wednesday April 3, 2013, 3:55 pm
Quite extraordinary how the banking industry has to lie and deceive in order to stay in business, when really it's still managing to lie and deceive the very public that have bailed most of the institutions out.

Vicky P (476)
Wednesday April 3, 2013, 4:39 pm
All banks are so corrupt, and politicians sit around taking in lobbyist money and don't give a crap about all the money going missing, criminal activity, etc.

Roseann d (178)
Wednesday April 3, 2013, 5:07 pm
Maybe it will reverse the trend away from electronic $$$ that exists only on paper...or cold hard cash, or setting up alternative monetary systems on goods to be bought locally. Barter systems too, I suppose.

Roseann d (178)
Wednesday April 3, 2013, 5:09 pm
Cyprus was a test-run

Lois Jordan (63)
Wednesday April 3, 2013, 5:27 pm
So, I'm wondering if this is just the Big Banks, or does it also include local S & L's? Many of us transferred accts. out of the Big Banks around the time of Occupy....wondering if this did have some effect, even though I've read articles stating it didn't. If this does happen in the U.S., I believe the protests that will occur will make the Occupy protests look like small street parties.

Angelika R (143)
Wednesday April 3, 2013, 5:46 pm
I don't 't know about the US airwaves, perhaps PBS?, but I know about ours and I'm speaking about consumer orientated features, shows, reports, mainly radio. Most economists are and have been advising to take out of banks what you have and can and take it home!
Cyprus was a clear failure of the elite as we hear now that before the banks closed and before the head of its largest bank resigned there were huge sums taken out and transfered abroad.

Yvonne White (229)
Wednesday April 3, 2013, 6:19 pm
Great way to start a run on banks..Depression style!:(

Craig Pittman (52)
Wednesday April 3, 2013, 7:28 pm
Canada has recently enacted similar legislation. This is huge. Just think of the implications.
Good story Kit. Thanks.

Katrina & Willi D (90)
Wednesday April 3, 2013, 8:44 pm
And how many of us have DIRECT DEPOSIT??? WOW!

cathie S (154)
Wednesday April 3, 2013, 9:05 pm
noted tyvm

Billie C (2)
Wednesday April 3, 2013, 10:12 pm
remember cyprus we will be next.

pam w (139)
Wednesday April 3, 2013, 10:30 pm

Bill K (4)
Thursday April 4, 2013, 4:31 am
might mattress needs new stuffing anyway. guess now i have something to stuff it with.

Bill K (4)
Thursday April 4, 2013, 4:32 am
my mattress^^^

Gloria picchetti (304)
Thursday April 4, 2013, 5:52 am
More of us are going to use credit unions.

Christina G (11)
Thursday April 4, 2013, 4:49 pm
i think only the big banks will be left standing... many people are going to gold and silver as they think the paper will be worthless but you can't eat them and we may (should) get back on the gold standard in which case it will probably be confiscated... maybe i can hibernate til the madness is over?

Past Member (0)
Friday April 5, 2013, 6:39 am
Banks accounts are only insured to a point, there is no need to confiscate. Let the bank close, pay the money that you have guarantee, use the extra cash to pay off the debts and you have maintain the rule of law without jeopardizing your reputation.

Kit B (276)
Friday April 5, 2013, 11:21 am

Most personal accounts are insured by the FDIC to $250,000. If you have more than that in one bank, you could lose it. Then again, we are not talking the old banking system most of us have stuck in our heads.

Thank you all for your comments.

Joanne Dixon (38)
Sunday April 7, 2013, 9:01 am
Not all banks are created equal. There are National Banks (or National Associations) and Federal Savings Banks (or Federal Savings Associations). Generally speaking, NA's are "commercial banks" and FSA's are "savings banks." However, both are controlled by the OCC. FSA's have smaller powers (their investment limit as a percentage of assets is lower, for example) which means less opportunity to get into trouble. Also, both are insured by the FDIC. Here's a citation which is pretty technical but does put things side by side to see easily: (the chart starts on page 1, after page vii)

Then there are Credit Unions, which are controlled and insured by the NCUA. The NCUA is an independent agency (the OCC is under the Treasury). (And just the fact that it is not under the treasury gives me some confidence.) As a depositor you probably would hardly notice the difference since the services offered are pretty much the same. The NCUA's website,, has a lot more information.

I already got away from NA's a while ago, and may have to look at getting away from my FSB also, although it has never had a scandal and is pretty solid. But now I am worried about my 401K's, which are at a Corporation and an LLC. At least I am older than 59 and a half, so if I need to move them manually I at least won't have a tax penalty.
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