Bankers Use Negative Interest Rate Policy as Bank Bail-In by Stealth

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Courtesy: Patrick Chappatte

By Ann-Marie de Veer
Saturday 5 March 2016

On the 25 March 2013 the Troika, aka, the European Commission (EC), the European Central Bank (ECB) and the International Monetary Fund (IMF), forced the Cyprus Popular Bank, aka. the Laiki Bank, to close and the Bank of Cyprus to sequestrate nearly 50 percent of the uninsured assets of its bondholders and depositors, i.e. accounts with assets >= €100,000, in exchange for a €10bn bailout fund. Of course, bank bondholders have suffered losses of this ilk before but this was the first time that such an event had involved a banks' depositors. In other words, the Troika's rescue package was dependent on a bank Bail-In funded by its depositor customer base.

The Republic of Cyprus first began to suffer severe liquidity problems, as a consequence of the US inspired Global Financial Crisis, back in 2008. By 2013, the Cypriot banks had long been overexposed to the bad debts they had incurred in Greece, in excess of €22bn, and a rapidly growing portfolio of non-performing loans, > €3bn, as the global recession continued unabated. The Troika's €10bn bailout fund was simply aimed at restoring liquidity to the nations banks even though Cypriot bank deposits were known to be in excess of €120 billion at the time. For the financial markets, who were now no longer willing to fund Cypriot government debt, the key issue was the banks potential losses, i.e. Greek debt and loan defaults totalled more than €25bn, which, given a Cypriot Gross Domestic Product (GDP) of just €19.5bn in 2013, represented a national debt-to-GDP ratio greater than 125 percent.

Most economists tend to agree that a national debt-to-GDP ratio in excess of 110 percent is unsustainable, a notion concurred by international financial markets, and it is extremely unlikely that a debtor in this situation would ever be able to repay their loan.

At first, the Troika's solution to the Cypriot financial crisis was greeted with incredulity in Greece, Ireland, Italy, Portugal and Spain, aka. PIIGS, where its depositors immediately feared a similar sequestration, i.e. haircut, of the funds they held in their accounts, not least because all of the PIIGS nations had previously received a bailout from the Troika. The European Union (EU), fearing a catastrophic run on the PIIGS banks if their depositors were to withdraw their funds in cash, quickly dispelled the notion and a degree of calm returned.

Nonetheless, the worlds' bankers have an alternative plan.

It is no coincidence that there has been an all-out war on cash since the events of March 2013 in Cyprus: bankers, particularly in the EU, and the West in general, have long since sought to control the use and flow of cash for their own nefarious purposes. However, because payment cards, mobile phones and the internet banking system all rely on an uninterrupted supply of electricity for electronic banking to function, a truly cashless society is some way off yet as evidence of its inability to meet the needs of its early adopters, i.e. in Denmark and Sweden, has shown. That bankers all over the world are keen to reduce the use of cash and high denomination bank notes in particular, i.e. the £50 and €500 notes, has little to do with the black economy that cash supports but is aimed at the control and regulation of the flow of capital. The behaviour of bankers and crooks are widely known as being synonymous since time immemorial.

This leaves the Negative Interest Rate Policy (NIRP) as the only viable alternative in stimulating the economy given the failure of the Zero Interest Rate Policy (ZIRP) which has been in force since early 2009.

Recently, as in late 2015 and early 2016, Denmark, Japan, Sweden and Switzerland (DJSS) have all introduced a Negative Interest Rate Policy. The NIRP, as applied by a nation's Central Bank, e.g. Danmarks Nationalbank (National Bank of Denmark), etc., is to encourage a country's commercial banks who exceed their minimum reserve requirements, aka. its cash reserve ratio holdings at the Central Bank, to lend the money out to stimulate commercial activity. In other words, if a commercial bank lodges more cash with its Central Bank than it is legally obliged to, it will incur a fee for the service where previously it would have received interest. While negative interest rates vary from country to country, i.e. rates currently range from -0.1% to -0.5%, the costs the commercial banks incur from their Central Banks in DJSS in holding their cash reserves have been passed on to some of their customers, albeit indirectly, as they are included in the banks billing of those customers who incur fees and levies as well as reduced interest rates for their depositors.

That the commercial banks of DJSS are simply using the Negative Interest Rate Policy of their Central Banks as a tool to sequestrate the funds of their depositors is obvious. Just how long it will be before the rest of the West's commercial banks adopt this form of percuniary theft, i.e. a bank Bail-In by Stealth, of their customers funds remains to be seen.

A thief passes for a gentleman when stealing has made him rich.
Anon - Dutch Proverb