U.S. and UK Test Big Bank Collapse – Risk Of Bail-ins
Regulators from the U.S. and the UK are in a “war room” today to see if they can cope with any possible fall-out when the next big bank topples over, the two countries said on Friday according to Reuters.
Treasury Secretary Jack Lew and the UK’s Chancellor of the Exchequer, George Osborne, on Monday will run a joint exercise simulating how they would prop up a large bank with operations in both countries that has landed in trouble.
Also taking part are Federal Reserve Chair Janet Yellen and Bank of England Governor Mark Carney, and the heads of a large number of other regulators, in a meeting hosted by the U.S. Federal Deposit Insurance Corporation.
“We are going to make sure that we can handle an institution that previously would have been regarded as too big to fail. We’re confident that we now have choices that did not exist in the past,” Osborne said at the International Monetary Fund’s annual meeting.
Six years after the financial crisis, politicians and regulators around the globe are keen to prove they have created rules that will allow them to let a large bank go under without spending billions in taxpayer dollars.
They have forced banks to ramp up equity and debt capital buffers to protect taxpayers against losses, and have told them to write plans that lay out how they can go through ordinary bankruptcy. The plans are so-called living wills.
Yet salvaging a bank with operations in several countries – which is the norm for most of the world’s largest banks such as Deutsche Bank, Citigroup Inc and JPMorgan – has proven to be a particularly thorny issue.
Because the failure of a big bank is such a rare event, regulators may not be used to talking to each other. There have also been suspicions that supervisors would first look to save the domestic operations of a bank, and would worry less about units abroad.
The exercise comes as regulators are about to bring to fruition further initiatives to make banking safer.
The first would force banks to have more long-term bonds that investors know can lose their value during a crisis, on top of their equity capital, to double their so-called Total Loss-Absorbing Capacity (TLAC).
A second measure, expected to be announced this weekend, will force through a change in derivative contracts, which in their current form protect investors, and complicate the winding down of a bank across borders.
Gold in U.S. Dollars (Thomson Reuters)
It is now the case that in the event of bank failure, your deposits could be confiscated.
Let’s be crystal clear: The EU, UK, the U.S., Canada, Australia and New Zealand all have plans for bail-ins in the event of banks and other large financial institutions getting into difficulty.
Are your deposits safe?
Are you prepared for Bail-Ins?
Special Report on Bail-ins Here
Today’s AM fix was USD 1,228.00, EUR 969.14 and GBP 763.82 per ounce.
Friday’s AM fix was USD 1,222.25, EUR 964.38 and GBP 761.01 per ounce.
Gold and silver both remained unchanged on Friday at $1,223.70 and $17.35. Last week, gold and silver both climbed 2.7% and 3.2%, respectively.
Silver in U.S. Dollars (Thomson Reuters)
Gold jumped sharply in the early Asian trading Monday as a safe haven bid came into the market. Gold in Singapore rose as high as $1,235 an ounce prior to concentrated selling in London pushed prices lower again. At the open in London, gold climbed to $1,237.30 an ounce, near a 4 week high, prior to selling saw gold fall back to $1,225/oz.
Last week gold bullion saw its largest weekly gain in 4 months as safe haven buying was seen due to concerns about the Eurozone and continuing ultra loose monetary policies.
Poor economic data from Europe, slow growth in China and concerns about Ebola have prompted investors to sell equities. Asian stocks stumbled to seven-month lows on today while crude oil prices were pinned near a four-year trough. Stocks in Dubai fell 6.5% on Sunday, the biggest drop in four months to bring the Dubai Financial Market General Index to its lowest level since July 20.
Gold is a proven hedging instrument and safe haven asset to riskier assets such as equities.
Last week the IMF cut its global economic forecast, and the U.S. Fed’s very dovish comments have made investors think that an interest rate hike is coming later than they expected.
Fed officials also expressed concern over the global economy, which could further delay a rise in U.S. interest rates.
Most notably, Fed Vice Chairman Stanley Fischer said the effort to normalise radical U.S. monetary policy after years of extraordinary stimulus may be hampered by the global outlook.
A delay in raising interest rates is positive for gold, a non-interest-bearing asset, and negative for the dollar and other interest yielding assets.
Today, Japanese markets are closed and the U.S. and Canada will be partially, or fully, shut for holidays as well.
Singapore launched physically-settled kilobar gold trading today or contracts for 25kg or 804 ounces each. Singapore has stated its intent to become an Asian gold hub with a goal of setting a regional benchmark price. The contract which expires tomorrow was priced at $39.685/gram at close of trade. The contracts trade at 830-1130 am Singapore time.
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