Last week we investigated nonperforming EU loans and an EU proposal to freeze accounts if a run on a bank starts.
Today let’s investigate the EU’s deposit insurance scheme with the likely result being a ban on cash.
On July 19, with little media publicity, the EU Single Resolution Board issued a statement with this exact title: Press Release – Banking Union – Single Resolution Board collects €6.6 billion in annual contributions to the Single Resolution Fund, now reaching €17 billion in total.
For starters, there is no “banking union” to speak of. That aside, let’s explore the deposit insurance goal and where things are now.
As of 30 June 2017, the Single Resolution Board (SRB) had collected €6.6 billion from 3,512 institutions in annual contributions to the Single Resolution Fund (SRF). In total, the SRF now holds an amount of €17.4 billion.
The SRF pools contributions which are raised on an annual basis at national level from credit institutions and certain investment firms within the 19 participating Member States. These contributions are calculated on the basis of the methodology set out in the Commission Delegated Regulation (EU) 2015/63 and Council Implementing Regulation (EU) 2015/81 and are collected via the National Resolution Authorities (NRAs).
The SRF is being built-up over a period of eight years (2016-2023). The target size is intended to be at least 1% of covered deposits by end 2023. 3,512 institutions banks and investment firms have to contribute to the Fund.
“The Single Resolution Fund ensures uniform practice in the financing of resolutions within the Single Resolution Mechanism. It is an important safeguard that can be accessed as last resort only. In addition we have Loan Facility Agreements with all Member States in place and are supporting the efforts of Member States to put in place an effective common backstop.” – Elke König, Chair of the Single Resolution Board
The Goal
That’s the entire press release, as written. The goal is to create an emergency “safeguard” that can only be used as a “last resort”.
The target goal is “at least 1% of assets” and it will take until 2023 to collect this reserve.
SRF vs NPLs
At hand right now the SRF has €17.4 billion in the emergency safeguard.
As noted last week, there are Over €1 Trillion Nonperforming EU Loans.
Italy alone has €276 billion in non-performing loans. Greece and Cyprus have NPL ratios of 46% and 45% respectively. Bulgaria, Croatia, Hungary, Ireland, Italy, Portugal, Slovenia, and Romania all have NPL ratios between 10% and 20%.
Spotlight Greece
46% of loans Greek bank loans are non-performing. The Greek sum is a very significant €115 billion.
On December 21, 2016, John Mauldin noted Greece’s Debt Problem Has Reached a Dangerous Point.
Here is the key sentence: “Nearly seven years, 13 austerity packages, and three bailouts (worth a running total of $366 billion) later, the Greek economy is still struggling.”
Bailouts? Who? Where?
Not Greek citizens. Not Greet banks.
Rather, $366 billion was used to bailout Greek creditors, primarily Germany.
It will take until 2060 to pay back that “bailout” according to the Wall Street Journal’s report of Greece’s Debt Due, published February 19, 2015 and updated July 28, 2017.
Payback Timeframe
To pay back the alleged bailout, Greece is supposed to maintain a primary account surplus of 3% of GDP indefinitely. A primary account surplus means Greece will collect more in taxes than it spends, not counting interest on its debt.
The odds that will happen are roughly zero percent.
Even if the Single Resolution Fund threw its entire emergency fund of €17.4 billion at Greece, it would not do a damn thing for either Greek debt or Greek non-performing loans.
SRF is a Joke
Simply put, the SRF is a complete joke. It’s only purpose is to pretend that something meaningful is taking place when clearly it’s not.
Target 2
On top of it, a quick check of the Bundesbank Target2 Balance shows peripheral Europe owes Germany a new record high €860 billion!
EU Banking System is Insolvent
- The deposit insurance scheme is a joke.
- The Target 2 system is a fundamental flaw of the Eurozone. Target 2 debts will not be paid back,
- Nor will Italy, Greece, and other countries collect on non-performing loans.
- To prevent runs on banks the EU is investigating a scheme to freeze bank accounts. The next logical step is ban on cash altogether
- The EU banking system is insolvent.
Related Articles
- It’s Your Money But You Can’t Have It: EU Proposes Account Freezes to Halt Bank Runs
- Zombie Corporations Litter Europe, Kept Alive by ECB
- Over €1 Trillion Nonperforming EU Loans: EU vs US Percentages
- Target2 and Secret Bailouts: Will Germany be Forced Into a Fiscal Union with Rest of Eurozone?
- Fuse is Lit! Target2 Imbalances Hit Crisis Levels: An Email Exchange With the ECB Over Target2
Mike “Mish” Shedlock
why are we still depositing money in bankrupt institutions?
Citizens should be allowed inherently risk-free accounts at the central bank itself and government-provided deposit insurance and other privileges for the banks abolished.
Then we would have 100% private banks with 100% voluntary depositors and TWO payment systems:
1) an at-risk, not-necessarily-liquid payment system consisting of depository institutions as is now the case
AND
2) an additional risk-free, 100% liquid payment system consisting of non-bank private sector accounts at the central bank itself.
Citizens should NOT be forced to deal with private banks, etc or else be limited to cash. Instead, we should be able to deal with our Nation’s fiat the same way banks do – with inherently risk-free accounts at the central bank itself.
Sounds sensible but then who funds the private banks and enterprises (some creditable) that want to borrow from them? To attract deposits to lend out the private banks would have to push up their savings rates to attract the capital = slow down in the private business sector.
One of the problems for central bankers Weidman noted – if they introduce official crypto currency, customers might move out of deposits and collapse the system by holding their currency out of the market in times of stress. In short, central bankers will lose the control they now have.
Banks don’t lend deposits. Deposits are liabilities to banks, not assets to be lent out. Deposits are used for the other important banking function: payment settlement.
Under a system where crypto currency was used fractional lending and deposit creation may look very different, where ultimate claim to each individual unit of currency would be allocated. Hence to deposit might well mean to litterally deposit the base money with the bank for re-lending, as opposed to the double entry pooling that currently takes place.
Sounds sensible but then who funds the private banks and enterprises (some creditable) that want to borrow from them? The_Fish
New sovereign debt could be sold (for a slight positive yield) directly to the central bank for new fiat to be distributed equally to all citizens into their individual accounts at the cb. Some of that new fiat would no doubt be lent to the 100% private banks for onlending into the economy.
This noted duality of function with banks as lenders/creditors overlapping with banks as trusted third parties running our payment systems is at the core of our problems. Schumpeter pointed this out and noted that under healthy capitalism bank lending to entrepreneurs was effectively a forced savings by society that provided the new capital required for new capital formation producing factories and so on. Before this invention of double entry bookkeeping, banks, and finance, the world had closed feudal economic systems where one man’s expenditure was another mans income and no money for new capital formation was ever available to fund new ventures. For this reason you must be very careful tinkering with our current version of capitalism which can work very nicely when it’s working well. The problem with our current system isn’t that it inherently sucks, it’s that it can become unstable. Banks can decide that funding new ventures is too risky compared to asset backed lending to asset price speculators. Any proposed fix has to address these issues.
Great post and absolutely correct. Banks lending to purchase assets means money gets created and you get asset inflation. Instead we want money to get created to create new products. Intensely important detail almost always overlooked in conversation.
Before this invention of double entry bookkeeping, banks, and finance, the world had closed feudal economic systems where one man’s expenditure was another mans income and no money for new capital formation was ever available to fund new ventures. peterblogdanovich
Equal fiat distributions to all citizens (funded with sovereign debt sold directly to the central bank) could increase the money supply (whose definition would now include base money) as needed and without the potential deflation inherent in bank credit expansion.
Plus 100% private banks with 100% voluntary depositors could still extend SOME credit safely so let’s not imagine that double entry accounting would cease but rather that the liabilities wrt the non-bank private sector would cease to be the sham they largely are today.
A monetary sovereign government can theoretically never go bankrupt. Because it is the monopoly issuer of its currency. Greece dropped its Drachma and ceased to be MS, so now it is a client state of the Eurozone. I wonder if anyone thought what a rotten idea it was to join the Euro??
The euro has no central bank to pay client state expenses. It’s all down to the commercial banks to manage the money.This is great news for commercial banks as all the old central banks are no longer anything but commercial. All the debts they create are credit loans, and have to be repaid.
Greece [and others] have to a] change the system and get a CB like the Fed, or b] leave the Euro. Then the debts can be written down. with just a few keystrokes.The UK can do it. The Lisbon treaty only says that spending has to be offset with selling gilts. So at least Greece and Italy etc could do that.
Usually it is the value of the currency is what gets written down by state printing, national central banks do similar to the ECB, but at least they are their own, and work according to national , not foreign, policy making.
Why would anyone bother to ban “cash” Euros? The ECB has been feverishly making the things worthless.
Every European family with any savings left should already be working 24/7 to shift their wealth into something more stable — real estate, art, swiss franc, olive trees (Greeks centuries head start on ECB), etc etc etc.
Once “money” goes electronic, its hackable and one stream of electrons is as worthless as the next. Central banks will never give up cash because doing so will put them on the same level as the black market (if not lower — a lot of black market collateral is more stable and more reliable)
What is the nonperforming ratio in the US?
Ha ha!!
its zero. The US has no non-performing loans. We are having a very strong recovery, and the subprime contagion is still contained. Bernanke saved the planet from destruction, married the head cheerleader, cured cancer, and brought about world peace.
At least that is what the US media tells us…
I read recently that US NPLs stand at 1.7%.
the economic collapse of the eurozone has been predicted for a very long time, meanwhile to Euro has risen from 0.88 to 1.17 per dollar.
You forgot to admit the Euro started at 1.33… and you didn’t admit the G7 is having a race to the bottom
The ‘refugee’ crisis finally brings the euro to a head, and it pops…..euro @50 by 2020………dollar to 160 before it begins its descent.
Buckle up.
This the is the end game.
a) Full Monetization of the mess.
b) All debtor countries will lose fiscal controls.
c) A single European Union will have been created, largely controlled by Germany.
All actions taken will be to protect the German tax payer. Managing reality released to the German tax payer will have to be done very carefully with something seen to be in it for them.
If panic sets in with the German population it gets really interesting.
Trichet and others were under no illusion about the crushing pain there would be for some populations under the single currency – it was known this would be needed to achieve convergence. It was considered a price worth paying for a Unified Europe.
It will be so and the sheep are so compliant they can be handled however tptb want.
Democracy will be neutered/ignored to achieve the result.
Individuals don’t matter.
What will it look like with 25 years hindsight? It might be great or go down as another European experiment leading to suffering like Fascism, Communism etc. Euroism??
Euroism – the political philosophy of doing whatever is necessary to force non-convergent economies to share a single currency.
Why do all these more extreme political philosophies originate in Europe?
Note deposit guarantee scheme in EU is at a national level still, I don’t think it is part of the financial resolution mechanism, which is aimed at winding up investment banking.
https://en.m.wikipedia.org/wiki/Deposit_insurance
the debts can be written down. with just a few keystrokes.The UK can do it. The Lisbon treaty only says that spending has to be offset with selling gilts. So at least Greece and Italy etc could do that…
Why son of a gun!
Er….
I mean Mark of the Beast!
From ZH, Otmar Issing has termed the phrase “Euro Sabbatical” for what Greece needs, rather than Grexit. Temporary step outside.
Brexit might become “EU Sabbbatical”.
Italy could do well with the same.
If Greece leaves the Euro she will never rejoin it, but she should never have joined the damn thing in the first place.
How’s Iceland doing these days?
So will it be default or inflation? Those seem to be the two choices. I think it will be inflation in both Europe and the US.
Reblogged this on World4Justice : NOW! Lobby Forum..
AAAAAAAAAAAnd cue in the Black Market! And a whole new freshly-born, never-before-needed mafia infrastructure to service it. Geez! Its amazing how stupid these eggheads really are…
can anyone explain why the Euro is still rising his value against US dollar, non stop? when this will end?
Hi David See latest post
https://mishtalk.com/2017/07/31/mish-mailbag-why-is-the-euro-still-rising-when-will-it-stop/
With the ban on cash the question may become what happens to digital currencies or gold or other mediums of exchange with the world in chaos like it is down in Venezuela where people are starving to death. In such a desperate situation around the world when bank runs begin as banks freeze deposits and sovereign nations default, what should one do to protect himself and his family?I would guess that black market barter economies will take over until the military comes in under the control of the “New World Order “with a new currency under its control.
Some Venezuelans are using bitcoin to buy groceries and other essentials.
“The EU banking system is insolvent.”
…
Absolutely.
And explains – in our Looking Glass World – why the euro up ~ 10% re $US the past 6 months.
The EU banking system is insolvent. Well as I’m sure you are aware that on its balance sheet the Fed has over 4 trillion in assets, some of which are mortgage backed securities. I’m guessing some are loans backed by commercial banks assets that may still be marked to model rather than the market. For now but not much longer the dollar continues to be the reserve currency of the world so we will never be insolvent since we can just print our way out of debt when the fed stops rolling over these assets as they mature and discovers there are no buyers except for huge discounts could really hammer our bond market as rates rise taking crashing the equity markets!
As long as the indoctrinati continues to fall for the silly scam; that the failure of a bank is somehow more important than the failure of a lemonade stand, the Powers that Be can indefinitely continue to trot out that tired old, as always imaginary, hobgoblin; whenever they feel the need to steal some more of people’s wealth at the behest of their well connected friends and backers. Secure in the knowledge that the well indoctrinated will cluelessly fall for it yet again. And again, and again……
For the entire history of our species on earth, we have used forms of money that enable individuals to express value and trade directly with one another, strengthening our communal bonds. Now, the powers that be want to end this 200,000 year old traditional with a radical monetary experiment using digital money to ensure humans are no longer free to trade and express value without the monitoring and approval of various corporate and government intermediaries. The invention of Bitcoin, digital peer-to-peer cash, will spoil their plan.
Apologies if this sounds dumb, but this is a new topic of interest for me. In the graph, does the label “Treasury Bill Holders” refer to US treasuries, Greek treasuries, or some other entity?