ECON Bank of Ireland [my bank] going to business depositors (reg folks next)

[Melodi]

Well here it is gang, here we go - at least good old BOI was smart enough not to do this to the average depositor because they know that in 2008 people just took their money out of the bank and put it in First Bank of Mattress and Coffee Can. However, I suspect soon larger personal deposits will also be affected along with business accounts. As it is, savings is now effectively over; and I'm sure as soon as other banks in Europe sign on to the "bail in" situation they will start charging everyone to "hold" their money.

It is way too hard for duel citizens to get new accounts (I'm lucky to still have one) so I'm not going to bother changing banks, there are only three (really more like two) choices anyway and it is sort of Tweddle De and Tweddle Dum; both will be charging this in a few weeks I'm sure.

But it will encourage a lot more people just to do what I already do (only with their paychecks) and that is to only put in the bank what absolutely has to be there to pay bills and whatever charges they come up with in addition to the existing bank charges as "rent" for your money.

My hunch is this will not work well in Ireland, by tomorrow I expect another "slow" bank run to get started again.

Ireland's Biggest Bank Charging Depositors - Negative Interest Rate Madness
GoldCore's picture
by GoldCore
Aug 22, 2016 7:29 AM
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Deposits at Bank of Ireland are soon to face charges in the form of negative interest rates after it emerged on Friday that the bank is set to become the first Irish bank to charge customers for placing their cash on deposit with the bank.

Bank-of-Ireland-007

This radical move was expected as the European Central Bank began charging large corporates and financial institutions 0.4% in March for depositing cash with them overnight.

Bank of Ireland is set to charge large companies for their deposits from October. The bank said it is to charge companies for company deposits worth over €10 million.

The bank was not clear regarding what the new negative interest rate will be but it is believed that a negative interest rate of 0.1 per cent will initially be charged to such deposits by Ireland’s biggest bank.

BOI recently failed the EU stress tests and is seen as one of the most vulnerable banks in the EU - along with Banca Monte dei Paschi di Siena (MPS), AIB and Ulster Bank's parent RBS. All the banks clients, retail, SME and corporates are unsecured creditors of the bank and exposed to the new bail-in regime.

Irish_banks_stress_tests



Only larger customers will be affected by the charge for now. The bank claims that it has no plans to levy a negative interest rate on either personal or SME customers but negative interest rates seem likely as long as the ECB continues with zero percent and negative interest rates. Indeed, they are already being seen in Germany where retail clients are being charged 0.4% to hold their cash in certain banks such as Raiffeisenbank Gmund am Tegernsee.

The news came days after it emerged that FBD, one of Ireland’s largest insurance companies, have been moving cash out of Irish bank deposits and into bonds. Fiona Muldoon, the FBD CEO cited extremely low returns on deposits and bail-ins as the reason they were withdrawing cash from Irish banks and diversifying into corporate and sovereign bonds. Muldoon said as reported by the Irish Independent that

“As they mature, and as the bank bail-in rules come into play, it’s no longer the case that for corporate investors depositing at a bank is risk free,” she added.
“To be honest, the return is abysmal now. We’ve gone back to a more typical investment portfolio for an insurance company.”

“You have to be paid for the risk you take,” she added. “You might entertain the bail-in risk if you were being properly paid. But if you’ve a bank trying to charge you for leaving your money with them, you’re not inclined to take any risk at all.”

The monetary policies being pursued by the ECB and other central banks is making deposits, banks and the banking system vulnerable. Central bank policies are contributing to individuals and companies withdrawing deposits from banks which is making already fragile banks even more fragile.

It is important to note that while there are "deposit guarantees" in place in most jurisdictions in the EU, these guarantees are only as good as the solvency of the nation providing them. Many nations in the EU remain insolvent or at least border line insolvent. Thus, the deposit guarantee level of €100,000 in many EU states and £75,000 in the UK is likely to be arbitrarily reduced to lower levels in the event of deposit "haircuts" in the next banking and financial crisis.

Prudent retail, SME and corporate clients are realising the increasing risks facing their deposits. They can no longer afford to simply leave their deposits in a single bank account or indeed even in a few bank accounts. Diversification into other assets, including an allocation to physical gold, is becoming an important way to hedge the risks posed by negative interest rates and bail-ins.
http://www.zerohedge.com/news/2016-...ing-depositors-negative-interest-rate-madness

 

[Shacknasty Shagrat]

My condolences to the Irish...and the Greeks....and the hapless Venezuelans.
You may find this article pertinent.
Wonkblog
The miraculous story of Iceland
By Matt O'Brien June 17, 2015a Commons)

What's the difference between Iceland and Ireland? Back in 2009, a bit of gallows humor held that the answer was one letter and six months. In other words, it was only a matter of time before Ireland's banks brought down their economy just like Iceland's had.

The timing was a little off, but the rest wasn't. Both countries' banks went bust, both got bailed out by the International Monetary Fund, and both did austerity afterward. But despite these similarities, Iceland's recovery has been better than Ireland's. Specifically, its economy is 1 percent bigger than it was before 2008, while Ireland's is still 2 percent smaller. That's more surprising than it sounds since Ireland's crisis was merely catastrophic and Iceland's was completely so. But more than that, Iceland is doing better even though—or, for the most part, because—it did everything you're not supposed to. It let its banks fail, it let its currency collapse, and it implemented capital controls--limits on people taking money out of the financial system--that it's only now getting ready to lift. Not all of it helped, but enough of it did that the question has become how much of a role model Iceland should be for everyone else. And the answer is: It depends!

Iceland might have been the most obvious bubble ever. During the mid-2000s, it went from being an Arctic backwater that specialized in fishing and aluminum smelting to an Arctic backwater that specialized in global finance. Iceland's three biggest banks grew to 10 times the size of their economy by offering people overseas, especially in the Netherlands and Britain, higher interest rates than they could get at home. Then, armed with this cash, Iceland's bankers went on a historically ill-advised buying spree. They bought foreign companies, they bought foreign real estate, they even bought foreign soccer teams. But with it all, they bought the dregs. The problem, in other words, was that Iceland's banks were not only paying high prices for questionable assets, but also promising to pay their depositors high interest rates. This was about as unsustainable as business models get, and it wasn't that hard to tell. All you had to do was look for five minutes. That's what Bob Aliber, a professor emeritus at the University of Chicago, did in 2006 after he heard a talk about Iceland that might as well have been a neon sign flashing financial crisis. What he found convinced him, as Michael Lewis tells us, to start writing about Iceland's crash even before it happened.

And then it did. Short-term lending died after Lehman Brothers went bankrupt, and Iceland's banks were collateral damage. Although, to be honest, they were so mismanaged that collapse was inevitable (which is why some of their high-level execs have been sent to jail). But in any case, Iceland's government couldn't afford to bail out its banks that had gotten so much bigger than its economy. The only choice was to let them go under. In other words, Iceland's banks were too-big-not-to-fail. That was a lot easier, though, when letting the banks fail meant letting foreigners lose their money. Iceland's government, you see, guaranteed its own people's deposits, but no one else's.

But now it was Iceland's government that needed a bailout. It needed the money to protect domestic deposits, cushion the economy's free fall, and keep their currency, the krona, from crashing much more. In all, Iceland got $4.6 billion, with $2.1 billion of that coming from the IMF and the other $2.5 billion from its Scandinavian neighbors.

This is where the story that Iceland broke all the financial rules begins to fall apart. In a lot of ways, the IMF's intervention was typical. Iceland sharply reduced spending—introducing more austerity than than Ireland or Portugal or Spain or Britain or even supposed budget-cutting superhero Latvia did, as economist Scott Sumner points out. Only Greece has done more. Not only that, but Iceland also increased interest rates all the way up to 18 percent in the immediate aftermath of the crisis to rein in inflation. It gradually cut interest rates afterward, but it wasn't until 2011 that they reached a "low" of 4.25 percent.

So Iceland had a bigger financial crisis, did more austerity, and had higher interest rates than Ireland, but has still managed to recover more. How is that possible? Well, it's not just that Iceland let its banks go bust, while Ireland bailed its out. Reality is a little more complicated. It's true that Ireland ran up a lot of debt guaranteeing its banks, but it's also true that it restructured that debt in 2013 in a way that effectively cut 40 percent of it. That's a quiet default, or at least half of one.

No, the biggest difference between the two is that Iceland has its own currency and Ireland has the euro. See, when the crisis hit, both countries discovered that their now-burst bubbles had just masked how uncompetitive they'd become. Their people were getting paid too much, relative to the rest of the world, for the work they were doing. There are two ways to fix this. You can get paid the same with money that's worth a little less or you can get paid a little less with money that's worth the same.

This might sound like a distinction without a difference, but it's not. People don't like taking pay cuts—economists even have proof!—so the only way to get them to do so is to fire enough people that they're happy to take any wage greater than zero. But even if that works, it doesn't for the economy. That's because lower wages make it harder to pay back debts that aren't lower. People have to set aside more of their money, in percentage terms, to pay back what they owe, so they have less to spend on everything else—which means businesses that don't have as many customers don't have as much reason to invest. It's self-defeating. Iceland was able to avoid this kind of downward spiral, though, because its currency collapsed nearly 60 percent between the end of 2007 and the end of 2008. Voilà, competitiveness regained.

Ireland, on the other hand, didn't have its own currency to devalue, intentional or otherwise. It had the euro. So instead of cutting wages by cutting its currency, it had to cut wages by, well, actually cutting wages. That's never easy, but it's especially hard when the government is cutting back at the same time. The result was what its backers kept claiming was an austerity "success" story where unemployment only recently reached the single digits.



If anything, the real surprise is that Iceland hasn't done even better. After all, slicing your labor costs in half should, in the short-run, be a big boost to exports and tourism. And it has. The problem, though, is it hasn't been enough one to lift the rest of the economy. Why not? Well, part of it is the austerity. But another part is a private sector that's been weighed down by two things. First, Iceland might be the worst place in the world to borrow money. Most mortgages are indexed either to a foreign currency or inflation, so the former doubled when the krona crashed and the latter, well, inflated when inflation subsequently took off. The perverse result is that devaluation and inflation have actually made Iceland's household debt problem worse, not better. That's why the headlines about Iceland writing off 13 percent of GDP of household debt are so misleading. That's just making up for the fact—and maybe not even then—that Iceland's bizarre borrowing laws have pushed up their households' debt burdens so much.

Then there are the capital controls. The IMF made Iceland put them in place after the bottom fell out to keep it from falling any further. The worry was that foreigners who owned krona-denominated assets in the failed banks would sell them en masse, and, in the process, make the currency's 60 percent drop to that point look quaint. So the government stopped letting people move their money out of the country. This stabilized the krona, which, on the plus side, stabilized inflation. But on the minus, keeping money in the country also kept money out. Foreigners didn't want to invest someplace where their money would be trapped. And that's at least part of the reason Iceland's private investment has still been so much lower than it was before. The good news, though, is that Iceland now has a plan to tax some of these foreign krona-holders and to get the rest to turn their short-term assets into long-term ones. In other words, Iceland should be able to lift its capital controls. It only took six and a half years.

Iceland's recovery has become a myth wrapped in a legend inside a legend. It let its banks fail, slashed household debt, let its currency collapse, put capital controls in place—and now it's doing better than those countries that did austerity! In reality, Iceland let its banks fail for foreigners, wrote down household debt only after their laws had made it worse, had no choice but to watch the krona plummet, but, at the same time, tried to keep it from plunging too far by limiting how much money people could take out of the country . Oh, and it did more austerity than any country not named Greece. The truth is a more complicated place.

The lesson is that in a crisis—don't forget those three words—you can get a lot of things wrong and still be okay as long as you default and devalue. You can do a lot of austerity and make life impossible for borrowers and prevent people from investing in your country for years longer than you probably should have. You just have to get the big question right—what currency should I use?—and you'll have a decent enough recovery. The right monetary policy, in other words, can cover up a lot of mistakes.

The question now is what Greece thinks of this.
https://www.washingtonpost.com/news/wonk/wp/2015/06/17/the-miraculous-story-of-iceland/

 

[Melodi]

There was another thing - the will and determination of the population - you see not long after Iceland collapsed (for which I had a near ring side seat as a close friend teaching at a University there blogged the whole thing daily) the UK decided to use new TERRORISM laws; the ones that were promised never to be used on like Western citizen but only on you-know terrorist types; they decided to use them to try to force Iceland to bail out their British investors as well.

You see, the UK was basically accusing the Icelanders of being terrorists! The UK had no earthly idea how badly that was going to play in Iceland nor did they have a clue just how badly 300,000 people (the population of the country) could simply dig in their heals and say "so you think we are terrorist you scum! We will now NEVER surrender."

Even having Fast Food places stop serving burgers (because they couldn't get beef) or not being able to buy books (too expensive to import) would move them..yep there is a lot more to the story than just that; the article tells the basics pretty well.

But a huge difference beside the currency between Ireland and Iceland was that the EU managed to terrorize Ireland by actually having posters days after the initial collapse in Iceland, saying to Ireland "do you want to be Iceland?" - because Ireland had already voted the "wrong" way once on the EU treaty so now they were being forced to vote again and get it "right" this time.

Of course the long term joke is, "yep should have been like Iceland, opps too late now..."

However, for right now; the article is correct and for the moment Ireland is stuck with the Euro and the current situation; what I think the EU/IMF has forgotten though was in 2008 there were basic slow but steady bank runs here and I expect them start returning as early as tomorrow morning.

Ireland has always been sort of on the edge of things and while not as poor as Greece, was pretty much third world until the 1980's; people here don't trust banks much to start with - start asking them to pay for banks to look after their money (beyond the usual banking fees) or worse even hit at "hair cuts" like in Cyprus and the Bank of Ireland and friends won't have to worry about charging depositors because they won't have many.

Things are not set up here to just end cash tomorrow either; the government looked at doing that in 2007 and realized it would be an extremely expensive nightmare with so many people who were still out of the banking economy especially in rural areas.

But I'm going to watch this one, it should get "interesting.."