UK Banking Industry – Most Unstable in G7 Implements Depositor Bail-in Scheme

TOPICS:BankingBritainGraham Vanbergen

January 10, 2016

By Graham Vanbergen
Back in September we published an article “Grand Theft Auto – UK and EU Bank Depositor Bail-In Regime Implemented” in which we described how banks throughout the EU would simply steal your deposits if any of them failed.
The first paragraph stated “Shares and stocks are tumbling around the world, with investors worried that the next global crisis has already begun. There is considerable uncertainty and nervousness amongst economists and trend forecasters. Government’s sooth jittery markets with misinformation in the hope that confidence does not evaporate and their legitimacy with it.”
On the first day of 2016 all banks located within the EU follow the ‘Anglosphere’ nations of Britain, America, Australia, New Zealand and Canada into an agreement, where the next bank failure and bail-in could cost depositors all their money.

Think it won’t happen. Six years after the last financial calamity caused by reckless bankers aided by negligent politicians in late 2014, one in five European banks failed basic stress tests that would see bankruptcy on the first hint of trouble. What did they need to get past that stress test? Twenty four thousand million euros.
One should not forget that the Bank of Cyprus passed its stress test with flying colours just before it crashed and burned. That bail-out and bail-in came in at €23 billion to the taxpayer but it also took 47.5% of depositors money over €100k as well.
Think it won’t happen to British Banks? This from the Financial Times:

The Bank of England’s stress tests of the banking sector have been attacked as “fatally flawed” for setting hurdles that are too easy to clear and giving false comfort about the safety of the financial system.

A report published by the Adam Smith Institute, a free market think-tank, calls for the BoE annual stress tests to be scrapped, arguing they are “worse than useless” because they disguise weakness in the UK banking system.
The BoE has said that banks will be required to meet a minimum 3 per cent leverage ratio to pass 2015 tests. If it had done so in 2014’s tests, half the banks would have failed: Lloyds Banking Group, Royal Bank of Scotland, the Co-op Bank and Santander UK.
An article in right-wing The Telegraph, opined – “Punishing the banking industry punishes the UK as a whole” where it postulates that in 2014 the banking industry contributed over £30bn to the treasury. What this article fails to say is that half of that tax paid was employee taxation, and only £1.6bn paid as corporation tax …. for the entire industry. Don’t forget that banks are still paying billions in fines, used to offset even more tax contributions.
Five of the biggest banking corporations in the world paid no tax on its UK operations, whilst many others paid very little, their contribution to an austerity ridden nation caused by their malicious and egregious abuses being next to nothing.
Labour MP, John Mann, said:

The tax receipts from these large financial institutions show what a charade their claim to pay their fair share has become. They rely on the taxpayer to underwrite their risk, yet they pay a minimal return back to the exchequer.

Since our article barely four months ago, the outlook for banking has got a lot worse and more risky.
Banks have returned to the same markets that caused the crash; interest-only mortgages, zero-percent credit cards and what they now term “credit impaired products” or sub-prime to you and me. Consumer credit reached pre-crisis levels last summer and shows no sign of abating. Mortgage providers are engaged in a ‘rate-war’ with nearly 200 providers requiring just 5% deposits.
In 2008, derivatives exposure bankrupted Lehman Brothers  in a $600 billion bankruptcy case that clocked in as the largest bankruptcy filing since the beginning of time.
What was it that toppled the almighty Lehman Brothers – the effects of contagion.