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EU Wants Big Depositors To Be First Supporters Of Failing Lenders

Friday, December 13, 2013 - 6:48 AM
The European Parliament has put forward a new mechanism to deal with bank failures in which major depositors in collapsing banks are tapped first in an effort to support the lender.

Sharon Bowles,  a lawmaker from the European Parliament involved in the talks, played down any such threat.  "I think it's not as mind-blowing as it was when it was first dreamed up," she said. "Everyone knows it has been coming."

Big depositors and bondholders face losses under new EU banking plans - Independent.ie
6
ShorebreakShorebreak2,622 posts since
Apr 6, 2010
Rep Points: 14,216
1. Friday, December 13, 2013 - 8:08 AM
Are European banks not insured like our banks are? ?  If they are, how can they force savers who are under the insure limit to pay for losses??  They would have to change our FDIC insurance rules before they could do something like that in the US wouldn't they? 
3
paoli2paoli21,372 posts since
Aug 10, 2011
Rep Points: 6,011
2. Friday, December 13, 2013 - 8:18 AM
The FDIC is controlled by congress.  So it wouldn't take much for our congress to do something simiilar.  Although, they would need to be darn sneaky to avoid a run.  I wonder how many big depositors in Europe will begin to put there money elsewhere.  But then again, where else?  And maybe that is part of their plan.  Get it out of the banks and into the market.  Dangerous games, I think.  :O)
4
ChrisCDChrisCD70 posts since
Nov 18, 2010
Rep Points: 457
3. Friday, December 13, 2013 - 8:28 AM
Bummed that you can't comment on the site holding the article.  And the threshold amount isn't that large.  They have it at $100,000.  They claim that it is saving the taxpayers.  Who do they think has their money in the banks?  I don't believe savers believe they are taking such risk when they just put their $ at the bank.  Seems banks would need to signifcantly raise their rates to offset such risk. 
3
ChrisCDChrisCD70 posts since
Nov 18, 2010
Rep Points: 457
4. Friday, December 13, 2013 - 9:00 AM
I just spoke to the manager at my local Chase.  He said the European banks don't have our type of FDIC protection.  However, if we have to depend upon our Congress to protect us, we are up a creek without a battle.  What will stop people from just putting under the $100,000.00 in a multiple of banks?  There are always loopholes but unfortuntely, only the very wealthy usually know about them.  Considering the low interest rates we get, I think my mom's saying "put it in the mattrassee, don't ever trust the banks" is a good saying.  I just never thought I could seriously consider it in my lifetime. What I want to know is how can even the depositors in Europe have to pay for the mistakes the banks make.  Usually when a bank fails it is because of bad management of the funds with risky mortgages etc.  Why should any depositor have to be penalized and pay for someone else's mistakes?   That's like charging me for a crime someone else did.
5
paoli2paoli21,372 posts since
Aug 10, 2011
Rep Points: 6,011
5. Friday, December 13, 2013 - 9:08 AM
I guess it will make depositors really careful about where they put their money.  And when you think about, FDIC insurance does make us kind of lazy.  Many don't really worry about the health of the bank since they know they are covered if something goes south.  If that changed, people would be much more careful, and that would probably be a good thing. 
4
ChrisCDChrisCD70 posts since
Nov 18, 2010
Rep Points: 457
6. Friday, December 13, 2013 - 9:46 AM
Maybe it is because I am a "child" of the Depression and heard "Don't trust the banks" for most of my life but I have never just used one bank or brokerage.  I spread what we have around and will not even go near a bank which already doesn't have a 4 or 5 star rating. 

I only faced one bank closure years ago but it was a scary experience.  I heard about it the day before and was there at opening to withdraw everything.  As I was leaving they locked the doors behind me and put a sign up that others would have to with until the FDIC took over and decide about who got their deposits back.  (I guess they had to see who was over the insurance limit).  People were banging on the door but to no available.  A few minutes was the difference as to whether they got their money that day or had to wait on the FDIC.  Some people may have needed their money for bills etc. but they could not touch it.  So even with FDIC insurance, it can still be "first come, first served".
4
paoli2paoli21,372 posts since
Aug 10, 2011
Rep Points: 6,011
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