How relevant is the 100k guarantee

Just in case anyone needs reminding, this happened only ten years ago in an EU country (in Cyprus "No insured deposit of €100,000 or less would be affected, though 47.5% of all bank deposits above €100,000 were seized").
 
basilbrush said:
Just in case anyone needs reminding, this happened only ten years ago in an EU country (in Cyprus "No insured deposit of €100,000 or less would be affected, though 47.5% of all bank deposits above €100,000 were seized").
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Yikes. Looks like they got shares in the bank so did they lose anything ?
 
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Cyprus 2013 was before the EU’s current bank supervision and resolution regime was in forcee

Both the risk-taking in advance by the banks and the chosen solution would not be allowed today.
 
NoRegretsCoyote said:
Cyprus 2013 was before the EU’s current bank supervision and resolution regime was in forcee

Both the risk-taking in advance by the banks and the chosen solution would not be allowed today.
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Cyprus was an outlier. You'll find a lot more references to bail outs (government jumps in with fresh capital) than bail ins (uninsured depositors pay). Look at the US this year. Rather than allow depositors to get burned they looked after all depositors regardless of balance. Of course we have our own experience with banking crises.

In saying all that i wouldn't be too fast to rule out completely that depositors can be part of a solution. While resolution policy has progressed unguaranteed deposits still count as liabilities that can be bailed in. Albeit it should be a fairly remote possibility.
 
coolaboola12 said:
What part of the solution wouldn't be allowed ,?
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Large banks are now resolved by use of the EU Single Resolution Mechanism which involves heavy EU oversight: ECB as supervisor as to declare a bank failing, then the Single Resolution Board in Brussels authorises a resolution with oversight from the EU Commission and Council. Resolution is some combination of write down or capital and unguaranteed deposits, sale of assets, drawing on national DGS. The SRM can also tap into a €64bn resolution fund to support the resolution tools. There is no single EU DGS (yet) of course.

So decision-making is taken out of the national capital and as part of the bargain there is more support for the resolution from the rest of the EU.

So to play counterfactual:
  • ECB as supervisor today would not let Cypriot banks take on so much risk, and would have declared them failing much earlier;
  • Resolution could have involved drawing on EU funds and not just the national DGS, so probably smaller haircuts for large depositors.
I don't think people realise how much effort goes into resolution planning at bank and supervisor level today compared to 15 years ago where this was largely ad hoc and with no real framework at EU level. Every supervised entity has to have a "resolution plan" in place with annual oversight by supervisors to that if the proverbial hits the fan things can be wound up in a planned fashion. This doesn't mean that a resolution isn't messy or uncertain, but all bank resolutions that have occurred in the EU after the Cyprus mess in 2013 have been pretty orderly with limited contagion and guaranteed depositors being made whole.
 
Yes but just guaranteed depositors, not ones over 100k
 
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