.
.
Recent events in Cyprus have once again brought the global financial sector into sharp public consciousness. This time, as well as a bailout, there was a serious – and ominous – demand from the EU that Cyprus make a “one off” levy (or tax) on the savings of Cypriots and others living in that country.
.
Acknowledgement: NZ Herald – Hard EU bailout terms anger Cypriot savers
.
Deposits up to and over €100,000 ($158,000) would be levied with a 9.9% tax whilst below that threshold would be pay a ‘lower’ portion of 6.75%.
Unsurprisingly, the proposed tax resulted in a run on cash withdrawals at ATMS (see: Cypriots asked to surrender up to 10 percent of bank balances in return for EU bailout); banks closed their doors (see: Fury as banks closed to avert run); global sharemarkets were affected (see: Stock Markets Fall Amid Fears Of New Eurozone Crisis); and the British government was forced to fly in one million euros to pay military personnel (see: One Million Euros Heading To Island For British Military Personnel ).
Pressure on the Cypriot government was such that in the last 48 hours, the Savings Tax was dumped (see: Rejection of Deposit Tax Scuttles Deal on Bailout for Cyprus). The Cypriot Parliament voted thirtysix against, with nineteen abstaining. It is noteworthy that not one politician risked his/her life by voting for the proposal.
Europeans. They know how to put pressure on their elected representatives.
Meanwhile, back home, in the Land of the Long White Cloud and several million sheep…
.
Acknowledgement: Radio NZ – NZ bank bailout scheme is last resort, says PM
.
Key’s statement here is chilling,
“At the end of the day we’re talking about emergency provisions. These banks are heavily regulated, they have significant oversight and lender of last resort facilities at the Reserve Bank.
This is really in the event that a bank got itself in such a terrible mess that it fell over and had to restart again.”
Acknowledgement: IBID
If that is supposed to be reassuring – it is not. In fact, if anything, this is a clear warning to every single New Zealander that if a bank gets into trouble – or if there is even a hint of trouble – to get in quickly and withdraw every cent that a depositor might have.
If a bank gets in trouble, and has a crippling run on deposits, it will be as a direct consequence to Key’s plan to dip into people’s savings to bail out that institution,
The Reserve Bank’s Open Bank Resolution (OBR) plan, due to come into effect at the end of June, would mean a partial loss on all deposits if a bank failed in New Zealand, in order to fund the bank’s bailout.
Acknowledgement: Fairfax media – Reserve Bank scheme news knocks kiwi
Ironically, this is where Libertarians – who consider all taxation as theft – may have a point.
Taxation is one thing. We pay it so we can enjoy the benefits of a modern society and economy. Roads, bridges, schools, hospitals, police, etc, do not materialise out of thin air.
Dipping into people’s savings accounts – which has already been taxed one way or another – is not a tax. It is expropriation.
Expropriatiion – that dreaded word which National and it’s supporters levy against the Left when we talk about re-nationalising State assets. But which evidently is ok if a bank goes bust and has to be bailed out?
If this principal is to be applied across all sectors of society and the economy, then one could imagine that employees and sub-contractors of Mainzeal should have been taxed to bail out that company. Why should a bank be different to a construction company? Is there a difference?
If this expropriation of deposits was ever to happen, do the depositors gain any benefit? Do they gain shares in the Bank as compensation? Or, if not, does that mean that shareholders gain the benefit of other people’s money being used to prop up their investments?
One could imagine an invalid on a WINZ benefit having his/her meagre savings “taxed” to bail out a bank – to preserve an investor’s shareholding that may be worth millions of dollars. This isn’t justice or common sense, this is nasty, medieval, “robber Baron” stuff.
The biggest irony here is that, according to the principals of the free market, this is a kind of subsidy to a business – a subsidy enforced by the State, against the will of people who are not even shareholders in a particular bank.
Even marxists would balk at such extreme State power to seize people’s money. They’d simply nationalise the bank and be done with it. Depositors would still have their modest savings left intact and untouched.
Key’s proposal is not just crazy from almost every perspective – it is an insult to our intelligence. Especially when banks are doing very well with their profits,
.
.
When profits for New Zealand’s four largest banks are at a staggering $3.5 billion (for 2011/12) – an increase of 22% – then that must raise serious questions why Dear Leader is even considering making depositors pay for any potential future bailout.
Shouldn’t the banks be looking at a deposit insurance scheme of some sort? You’d think so, wouldn’t you?
Perhaps, though, an event like this is what might be required to jolt New Zealanders out of their collective complacency. It’s only when the middle classes are hit hard in their wallets, that they stop being passive consumers and start to reassert themselves as active citizens.
Because, my fellow Kiwis, you can bet your last dollar (before the banks seize it) that John Key’s $50 million will be somewhere else – probably safe in some Swiss Bank account.
The people of Cyprus (and Iceland) have shown us the way.
Addendum
Remember the so-called “Light Bulb” and “Shower Heads” affairs, in 2008, where National slammed the then-Labour Government as engaging in “Nanny State” politics? (see: Showers latest target of Labour’s nanny state ) National’s Nick Smith said,
“People should be free to use as much water as they like when showering, provided they don’t expect others to pay for their profligacy. User-pays is a far better approach than nanny state.”
So using eco lightbulbs and smaller shower flows, to conserve electricity and water is nasty “Nanny Statism”.
But going into people’s savings accounts; stealing their money; and handing it over to banks – is all hunky dory? Well, I’m glad that’s settled.
(Cue theme music to ‘Monty Python’s Flying Circus’.)
.
*
.
References
Banking profits up 13.6 percent
ASB Bank cash profit rises 7pc
BNZ first-half profit jumps 36pc
$3.5b profits for big four banks
Outcry at big banks’ mega-profits
Additional
Reserve Bank scheme news knocks kiwi
.
.
= fs =
Could the Open Bank Resolution Policy be the tipping point that Kiwis finally wake up to Key and his evil government or Kiwis so disengaged and naïve Key can do what he likes and there is no political repercussions for him. This bill just allows the banks to effectively steal from us , I do not take comfort for English’s claim that this event is most unlikely as we have seen overseas events can quickly turn sour and the greedy banks will quickly enact on the power the government has gifted them.
There is absolutely no need for this and again it just shows how much undue influence multinational corporations have over this compliant government, Very scary.
Indeed, Mooloo. As some have asked, if the event is “so unlikely” – why have the policy in place at all? Not only is English’s comments not reassuring at all, but they smell of platitudes and weasel words.
The problem is that it’s an abstract, economics policy wonk issue. Red blooded voters respond better to blood in the water, scandals, etc.
That, and you can bet which way the media coverage of this is going to fall – squarely on the Govt’s side.
They’ve been doing that for five centuries or so so far – the amount that they’re taking has just been getting greater over the last few years and they’re working with the government to increase that theft.
Absolutely outrageous and disgusting, so those who worked hard all their life and wisely managed their money to accumulate some modest but important savings, such as my parents, have to bear the responsibility when fly-by-night bankers do their work.
Well off to the bank we go to rescue what’s there, while it’s there. Surely this policy can’t do wonders for confidence in the banking system.
It appears this country is merely being operated as a major scam, we pay too much for practically everything and are taxed ever further for minimal gains. Taxes today appear to be a slush fund for those in privileged circles.
There’s only so much that can be extorted from about four million people.
Indeed, Procrastinator.
The message being delivered to us by National is crystal clear; at the first hint of trouble – clear out your savings ASAP. Which, when you think about it, means that the Open Bank Resolution Policy would actually contribute to the collapse of a bank.
This is a Reserve bank plan not National party policy. Please note that the Reserve bank has a large amount of autonomy to regulate the financial sector.
My bad, Gosman.
I thought the Nats were running the country.
I presume you think the Government sets monetary policy as well then.
In fact, if anything, this is a clear warning to every single New Zealander that if a bank gets into trouble – or if there is even a hint of trouble – to get in quickly and withdraw every cent that a depositor might have.
The irony in this statement is that this would GUARANTEE the bank would fail! Looting or even hinting at looting people’s bank accounts is a ridiculously dangerous destablising policy. John Key should retract this immediately, because a stable banking system is a corner-stone for a properly functioning economy. What ALL banks that want to operate in NZ need to be CLEARLY told, is that there will be ZERO bailout if the shit hits the fan (outside of deposits), and that all those who made reckless/fraudulent loans in NZ will be prosecuted. Tighter regulations for loans is also a must (and this will also help regulate home prices – if you can’t get a loan you can’t buy).
NZ banks all look fantastically profitable now, but then so did all those European and US banks, right up until the time their credit bubble collapsed. House prices can and do go down! What would the solvency of these super-profitable, rock solid banks be if house prices decreased by say 30%? 50%? Think it can’t happen? Think again.
Oh, and Labour’s response? “Well, maybe we should do it at a lower rate for $30,000 or less.” FUCK YOU, Labour. We are fucking done, professionally.
If it fell over in the first place why would we want it to start up again?
Because the present banking system is unstable due to the amount of money, that also requires interest to be paid on it, that the banks have created is far above what can be repaid by the entire worlds production. The system must collapse and so TPTB are putting in place methods to protect it and the rich that it serves.
Several years ago I posted on my blog a warning about a plan by the global financial institutions of their plan for a globally co-ordinated bank ‘bail in’ plan named Open Bank Resolution Plan that would give them the ability to flick the switch on any nation and freeze its electronic payment and settlement system.
http://publiccreditorbust.blogspot.co.nz/2013/03/open-bank-resolution-plan-supranational.html
Since the wheels were put in motion for this plan there has been an omnibus of regulation and legislation taken place to align New Zealand to it.
We have for thirty odd years now been hooked into the Society for Worldwide Interbank Financial Telecommunication(SWIFT) a cooperative owned by all the banks of the world through which the financial world conducts its business operations with speed, certainty and confidence. More than 10,000 banking organisations, securities institutions and corporate customers in 212 countries trust us every day to exchange millions of standardised financial messages.
http://www.swift.com/about_swift/index
The SWIFT electronic payment and settlement system has been in place for thirty years and is currently our main transfer system. Its importance has recently been shown when it broke down;
http://www.stuff.co.nz/dominion-post/business/6804935/Bank-glitch-leaves-workers-without-wages
‘Thousands of Kiwis are waiting for their wages after a technical glitch brought down the system which manages payments between banks.
Steve Nichols, chief executive of Payments New Zealand, which oversees the interbank payment system, said the Swift payment system used by the banking industry had suffered an outage about 2am today.’
We are fortunate in New Zealand that thanks to Kiwi Bank and the Post Office computer system we are one of few nations that has back up electronic payment, settlement and transfer software should we ever choose to issue and distribute our own sovereign dollar money supply.
Various interests have of late been suggesting that Kiwi Bank be cut away from the Post Office;
http://www.scoop.co.nz/stories/BU1302/S00921/treasury-hires-goldman-sachs-to-run-ruler-over-kiwibank.htm
Treasury hires Goldman Sachs to run ruler over KiwiBank
‘Feb. 26 (BusinessDesk) – The Treasury hired Goldman Sachs to run the ruler over state-owned KiwiBank and its future capital needs.
A spokesman for the Treasury said the report has been completed but won’t be made public because the details are commercially sensitive.’
I would suggest that given the implications of the global scale Open Bank Resolution Plan and the nature of the institution giving the government secret advice on the future of Kiwi Bank that we should move heaven and earth to ensure that back up electronic payment, settlement and transfer software remain at the ready in this nation as it is as important life line to the nation as the merchant navy was and would be a lethal blow if it went the same way!
Ummmmm… what back up system does Kiwibank have for interbank tranfers?
Anyone know of the alternate settlement system run by Kiwibank?
A couple of years ago, some of us lost a lot of money when various finance companies went bust. I’m not sure that the situation with banks is any different However I do think that shareholders’ funds should be exhausted before a single cent of depositors’ monies are purloined. But should shareholders’ funds prove inadequate the only things left are a bailout by the taxpayer, or an acceptance that depositors will have to take a ‘haircut’. In this situation though it is difficult to see how the existence of an OBR mechanism would be relevant; so what really is the purpose of such a mechanism?
One thing though which is not clear about the Cypriot situation is whether the proposed bailout is a bailout of the banks, or a bailout of the government.
Presently deposits at KiwiBank are covered by the New Zealand Post guarantee:
“New Zealand Post Limited, our parent company, has guaranteed our payment obligations, including any payment obligation in respect of any deposit made with us. The guarantee does not apply to payment obligations where the terms of the obligation expressly provide in writing that the obligation will not have the benefit of the guarantee. This means that the guarantee does not apply to unsecured, subordinated bonds issued by us. The guarantee is not secured and its amount is not limited. The guarantee is unconditional and is terminable by New Zealand Post Limited upon three months’ notice to us. Any such termination does not affect any existing payment obligations owed under the guarantee at the termination date.”
http://www.kiwibank.co.nz/about-us/more-about-us/
However KiwiBank has confirmed to me that if the OBR plan goes through the guarantee will have to be withdrawn – it will be a Reserve Bank obligation.
Yet that last sentence of the summarised guarantee suggests to me that the NZ Post guarantee cannot legally be withdrawn with regard to deposits existing at the time . In which case get your money into KiwiBank quickly.
This is not Government policy but a Reserve Bank plan in event of a complete bank collapse. The ‘haircut’ on savers deposits is in exchange for Reserve Bank support. The alternative is that the bank in question goes completely bust and savers loser all there money. Why do people think when you put money in a bank it is somehow completely safe?
I would hope that if a bank collapses it would be placed under “statutory management”. No doubt honest statutory managers would be able to negotiate a suitable haircut/bailout deal with the Reserve Bank without there having to be some sort of RBO arrangement in place.
Bollocks. That would occur only in your Libertarian fantasy world.
In reality the government would take over the bank and allow it to trade it’s way out of insolvency. Once solvent, it would be on-sold. Please don’t make me waste time to provide examples for you – my lifespan is limited to another 50 years, max.
Because the banks pay us lower interest rates in return for low risk, financial security.
And if one bank falls over, what do you think would be the consequences, Gosman? Tell us what you think would happen?
Low risk is still a risk. Noone should think there money is completely safe especially if they are getting a return on it
And if one bank falls over, what do you think would be the consequences, Gosman? Tell us what you think would happen?
I notice yoyu didn’t answer that question.
I would prefer to see them fail completely. Politicians on the other hand are unable to take the political fallout from such an approach.
I am amazed by the lack of basic knowledge about the NZ financial sector that is displayed in both this post and the various comments.
Perhaps some of you might take the time to actually study the subject in more detail you wouldn’t make fundamental errors such as thinking the policy is a Government inspired effort rather than part of the Reserve Bank’s regulatory role over the Banking sector.
I would hope that a democratically elected government would have some say in what happens when a bank collapses; though I don’t have much faith in the prospect of the current lot making an effort to protect the interests of the general public or the depositors in the event of such a calamity.
Gosman: reality check time, bro.
You can carp on all you like that “this is not Government policy but a Reserve Bank plan”.
That may be.
But last time I looked, this was still a multi-party parliamentary democracy where we elect governments – not Reserve Bank bureacrats.
As you should know, “Parliament is Sovereign” – not “The Reserve Bank is Sovereign”.
Bureaucrats can come up with whatever weird and wonderful plans they want (carpark tax? cellphone tax?) – but in the end, it’s the guvmint that makes the call – not your precious Reserve Bank.
So you can cut out that “Reserve bank has a large amount of autonomy” crap.
At the end of the day, it’s politicians who are held to account for these things. That’s what we pay them for and give them nice shiny cars to drive around in.
English sez it’s “highly unlikely” that the Open Bank Resolution policy will ever be used.
Yeah? In which case – why have it at all?
Quite wrong Frank. The guvmint (sic) in this case has delegated the task of regulating the banking system to the RBNZ. Just as they have delegated the task of maintaining prices in the economy to the same body. How the RBNZ goes about this task is largely up to it. This is probably why the Labour party hasn’t made a fuss on this topic and it is left to the financial illiterate Green’s to do so.
Gosman, surely even someone as pedantic as you can understand that the descriptive noun “GOVERNMENT”and it’s meaning. I’ll leave that to you to work out.
Simple question for you Frank.
Does the Government of John Key have a policy of low interest rates?
The answer to that question is the same to whether the Government has a policy on requiring savers to take a haircut on their deposits in the event of a catastrophic bank collapse.
It’s correct that this is a regulatory measure on the part of the Reserve Bank. But the Reserve Bank is the creation of Parliament and Parliament is surely capable of legislation over it, however there are possible risks in the reaction from the financial sector.
On the face of it the OBR may seem to have merits; fewer burdens on tax payers, less risk to the financial system and less risk depositors lose everything.
However in the case of a bank’s failure, taking the burden off tax payers can possibly account for less scrutiny from the public. Ensuring the financial system remains secure is a positive in preventing wider repercussions. I doubt any depositor will be pleased with an unspecified “haircut”, emphasis on unspecified.
Couldn’t this just facilitate a means of bankers profiteering from an “engineered collapse”? Doing so with limited repercussions to the wider system and their fellow financiers.
Maybe I’m severely ignorant to the workings of this entire field and paranoid with too fanciful an imagination. After all throughout my life my main field of study was in mathematics and the sciences. I appreciate understanding a logical system (the natural world) as opposed to applying logic to create what seems to many a realm of entropy (the world of finance).
How can you expect someone to be an expert in this field when your finances are extremely modest at best? What’s the incentive or interest? If the current mess should clear (BIG IF) at least I could complete my degree in a field of understanding far more palatable, but no, entropy rules over us all.
Perhaps if I remove my heart, damage my brain, endure long deathly hours of study funded by prostituting myself, licked enough boots, kissed enough backsides and trample over my mother and the poor. Maybe then I could have the same calibre of genius as those who created the last and probably future global financial crisis, get cosy with the PM and his gaggle of geniuses.
Why do you think finance is the realm of entropy?
Finance is essentially the realm of managing and pricing risk. This is something that your mathematically and logical mind would understand and excel at surely.
Now I’m far from being a genius, like to consider myself adequate in my chosen studies. However if the financial system is exceptionally logical, why then when it goes belly up the taxpayers were required for a bail out? Not managed well is it? Surely such a logical system would never encounter major failures.
Lot’s of systems are cyclical in nature, even leading to catastrophic failure and recovery. As for why they need to be bailed out, that’s politics.
Irrespective of who’s in charge of the policy, it goes to show that, with apologies to George Orwell, all property rights are equal but some property rights are more equal than others.
Why do you think your savings with a bank are somehow safe from potential loss?
We don’t think our bank deposits are immune from risk, but we think that in the event of bank failure the loss should be borne by the shareholders in the first instance, and that depositors should only take a haircut after shareholders’ funds have been exhausted. However, we suspect that OBR may simply be a device put in place to protect the interests of shareholders at the expense of depositors.
The other possibility of course is that it may be in place to enable governments to seize depositors’ funds to help settle demands made on that government by overseas financial interests.
It could be but then that would call in to question the whole partiality of the RBNZ. This is perhaps why the Labour Party hasn’t made a big deal of this entire issue. If you don’t trust your bureaucrats then it makes governing very difficult indeed.
The existence of OBR calls into question the partiality of RBNZ. Quite apart from anything else, and unlike the Cypriots, who are tied to the euro, we have an independent currency. Therefore, in a worst case situation, we can print the money we need. So once again one would have to ask, what is OBR for.
To get this straight, are you advocating printing money to enable a bank bail out to occur? If you are then that is so crazy I love the idea. Of course it would never work, (see Zimbabwe between 2000 and 2008 to see why) but it would be incredible to see this tried.
I was contrasting our situation with Cyprus’s. The fact that they use euros means that they can’t inflate their way out of debt, so they have to find the money they need somewhere. We are not in that position. We could in fact create money. Since all of it would be going overseas the main effect would be a reduction in our exchange rate, which most people seem to consider overvalued in any case.
And we are not Zimbabwe.
Comments are closed.