EC process and Brussels Mole confirm that a legal mechanism exists to fleece all of us in the event of a euro bank collapse
The exceptionally unexceptional Olli Rehn
The Slog: In this follow-up to the weekend’s bailin process adoption
posts, The Slog fills in the remaining pieces of the jigsaw. You may
think you are a member of a Democratic European Union. You are not.
There are many easy ways to hide from the EU Parliament: bundling a
Delegated Regulation Supplement into a larger package (eg, on banking
union); or the meeting of an EC committee followed by “no response” from
MEPs are just two…the RRM is another. All have the force of Law. Follow
the timeline, observe the press statements, read the speeches….and make
your own minds up.
Let me at the outset pay tribute to two folks here. First, my
longstanding Brussels mole who has gone more than the extra mile here to
point me in the right direction; and the indefatigable Anna Raccoon (great post today by the way) mistress of the art of deconstructing obfuscation.
There is certainly no call at all for any tribute to the EU’s own
press officers and bureaucrats.
It’s obvious there is at least some
degree of deliberate obfuscation going on as regards the Bailin Law
question. There is, for example, no clear line of responsibility between
Olli Rehn (Economic & Monetary Affairs) & Michael Barnier
(European markets). All their press officers – and the EU Parliament’s
press office – are on holiday now until 23rd August. And since 19th July
until 26th August, the MEPs are in recess.
All of which presents a question I’ve been badgering the Brussels
Mole with since yesterday afternoon: how can a bailin law have passed if
the EU Parliament is as usual out to lunch enjoying annual holidays?
To which the answer is: because many instruments in the EU do not need democratic approval.
Hold that thought, and then follow this timeline.
The story starts in Michel Barnier’s manor after Cyprus. Quizzed by MEPs on 27th May this year, his inquisitors formally recorded their view that his answers were “unsatisfactory and evasive”.
But behind the scenes, the one-off that was a template and then an untemplate was being hastily turned into a proposal. This is where one or more EC committees recommend something full of caveats to see if anyone will notice.
Three weeks later on June 17th, Reuters teased out some facts from sources in Brussels. The euro zone, it confirmed
“is separately working on a law, called the bank recovery and
resolution directive (BRRD), that will establish its own order in which
losses are imposed on those who entrusted money to a failing financial
institution.”
In typical EC style, it outlined four options ranging from bromide to
draconian. EC proposals always put the thing they want to do last.
Within ten days (this is going at the speed of light for the EU machine) the full EC Council decided
on “a compromise”. While on the surface it looked very
yes-and-no-with-reservations, as usual there was a disturbing Get out of
Jail Free Card in small print at the end. My emphasis should be
self-explanatory:
’11228/13 4 E
The Council’s compromise approach provides flexibility to
national resolution authorities, subject to strict criteria and only in
exceptional cases, to exclude liabilities and to use the resolution
fund to absorb losses or recapitalise an institution. However, such
flexibility would only be available after a minimum level of losses
equal to 8% of total liabilities including own funds has been imposed on
an institution’s shareholders and creditors, or under special
circumstances 20% of an institution’s risk-weighted assets‘.
This is classic EC/ECB doublespeak: we will be flexible,
but only after we’ve cleaned you out, dear customer: 8% of a bank’s
liabilities (by the EU’s own liquidity rules alone) in a full-on bank
collapse would be more than enough to wipe out ‘shareholders and
creditors’ – which as of May, by some Divine Right of Banks, has been
taken to mean us.
In EUspeak, ‘exceptional’ and ‘special’ both mean the same thing: ‘inevitable’.
On July 7th ,Mario Draghi addressed a hearing at Rehn’s EAMAC as follows…..note the key word italicised: “until the regulation
on the single supervisory mechanism (SSM) is adopted, we at the ECB
cannot formally take decisions. In this context, it is my understanding
that the supervisory accountability arrangements with the Parliament, in
line with the SSM regulation, are nearing finalisation on the basis of a constructive stance by both parties.”
What does devious Draghi mean by finalisation and constructive behaviour? Exactly this:
‘In accordance with voting procedure on a Commission
proposal, the qualified majority rule applies. If the vote is favourable
(which is the case for the vast majority) The European Parliament and
The Council of the European Union have 3 months to oppose the adoption
of the draft Regulation by the Commission. If the European Parliament
and the Council give their favourable opinion on the adoption or the 3 months elapsed without opposition from their side, the Commission adopts the draft Regulation. After adoption, it is published in the Official Journal and enters into force on the day laid down in the Regulation itself.
The first draft of the Barnier proposal was circulated on
Friday May 3rd. The three months were up nine days ago. A draft
resolution becomes law under this procedure when the regulation says so.
This is the main contention of my source: he merely showed me where to
look, thus saving me about a week’s work. But he also suggested other
ways they could trump any MEP objections.
So I went to the EUParl press office site at the crack of
sparrow this morning. And guess what? They’re all on holiday until
August 23rd. There’s an emergency office phone with one bloke on call.
It rang out, with no message service. But eventually I tracked down the
bloke – Vaclav Lebeda – on his mobile. He was very helpful. And his
input suggested yet another way in which such a regulation could become
Law immediately.
Mr Lebeda said no, nothing had passed through the EUParl
before the holidays….it (OBR procedure) is still due to be debated in
the Autumn, with a view to becoming Law in 2014. He didn’t know what
Mario Draghi meant by constructive cooperation between the Parliament
and the Commission/Council. He didn’t seem evasive: he obviously just
didn’t know.
“So if the Spanish banking system collapsed tomorrow, what would the EC and ECB do?” I asked Vaclav.
“Ah,” he answered, “That would then be defined as an
emergency, and the EAMAC (Olli Rehn) would meet to take action. In
exceptional circumstances, they could issue an emergency directive.”
There was that ‘exceptional’ word again. So I asked had
there been any EAMAC meetings since the recess? He didn’t know, because
(he very fairly pointed out) he was at the EUParl press office, not the
EC or EAMAC office. And of course, they’re all on holiday too.
As Alistair Campbell might have said, “Yes, July-August
is a good time to bury some bad news”. So I went back to the Mole, and
this time he gave me another link dating from 2001. It related to
something called the Rapid Response Mechanism. And it sort of makes the
whole debate about “Proposal or Law” somewhat academic:
The European Council Regulation (EC) No 381/2001 of 26 February 2001 created
a rapid-reaction mechanism, to be used in those ‘exceptional’
circumstances where ‘the action is immediate and cannot be launched
within a reasonable time-limit under the existing legal instruments‘. Basically, it’s an Emergency Powers Act by any other name.
I have to leave the last word on this from my Mole….whose
view, by the way, is unofficially corroborated by a long-standing
Treasury-connected source:
“There are a thousand
ways to ignore the EU Parliament. My information is that with some
Parliamentary complicity, the proposal is in place as a regulation under
the 3-month rule. But anyway, they
could use the RRM, or they could just do it anyway – for example,
Draghi at the second Greek bailout, or the Cyprus fiasco. I can only
tell you what I know: on this issue, the full backing of European Law is
already in place to conduct an Open Bank Reconciliation (bailin) where
they could choose to do anything”.
The caveats in the proposal suggest they would indeed do
anything to save the banks and the euro. Let’s see what further evidence
– in the blogosphere or the MSM – can be dug up to add further
support….to what looks pretty solidly to me like a done deal.
I’m off to pick some fruit.
The new EU bailin law was hurried through alright…but the template was premeditated
Deutsche Bank…..two left feet
It’s becoming clearer with each day that passes why the EC rushed its new bailin law
through the European Parliament at the beginning of this month. When
the US returns from vacations after September 2nd – and even more so
once the German elections take place on September 22nd – we can expect
to see the brakes come off eurobank insolvency. But this is a race
against time: Angela Merkel’s fate hangs in the balance, and there are
clear signs that the bomb might go off prematurely.
Almost exactly a year before the Cyprus bailout, EU Directive 2012/0150 COD was drafted with a view to creating a template for future banking collapses. Its proposals mirror pretty exactly what happened in Cyprus – viz, a prototype bailin. Written in June 2012, it points clearly to the conclusion that Cyprus was a premeditated crime on the part of Brussels-am-Berlin.
The most obvious reference in the document is this one (my emphasis):
‘In any case, if the institution under resolution fails and does not have sufficient funds to repay depositors, the universality of proceedings ensure the equal treatment of creditors irrespective of their nationality, place of residence or domicile…..In order to ensure the equal treatment of creditors, [EU] Company Law Directives contain rules for the protection of shareholders and creditors. Some of these rules may hinder rapid action by resolution authorities.‘
Brussels sources say those safeguards have been quietly, but totally, dumped. The new Law – part of a batch relating to the Monetary Union road map – is, if you like, a post-rationalisation of what happened in Cyprus. But it is also a preparation for what the Eunatics know is coming down the line. What started off as a premeditated plan has suddenly become a matter of urgency. Here’s why.
My Madrid source has been saying for several months now that the Spanish banking system is being quietly propped up by the usual Peter-pays-Paul bollocks Draghi comes up with. Global Economic Analysis blogger Mish sums up the reality thus:
‘Spain’s exposure to Portuguese sovereign debt and unrealized losses on real estate loans are two reasons a collapse is inevitable….Spanish bank exposure to Portugal today is higher than French bank exposure to Greece in early 2010….A restructuring of Portuguese sovereign debt similar to the one completed by Greece, which involved haircuts of over 50%, would wreak havoc on Spain’s banking system.’
Well beyond Spain, Europe’s biggest banks – which have more than doubled their highest-quality capital to meet tougher rules – still have a long way to go in order to satisfy EC/ECB regulators…hence all the scurrying about with rights issues of late. But ringing and Skyping around the Continent last Friday, three large banks were on most people’s lists….and seven were mentioned in all.
Perhaps one of the more surprising of these is Barclays (not domiciled in the ezone, but huge across the EU) in that many observers see the banks’ rights issue as likely to be a flop. This is accurately reflected by the fact that its shares closed nearly 6% lower after the bank said last month that it would issue £5.8bn in shares to meet new EU requirements. More disturbing are the recurrent rumours about “cans full of worms” in the bank, although there is nothing specific to go on.
The most worrying potential casualty – certainly for the inhabitants of the Chancellery – remains DeutscheBank. The main contention is that the bank has taken a colossal hit on currency swaps. Last month Max Keiser described the bank as ‘on suicide watch’, and in June FDIC vice chairman Thomas Hoenig called Deutsche “horribly undercapitalised”. German Sloggers continue to insist that DB is being secretly propped up with government money. There are of course elements in Frankfurt who would love to see more solid bad news from Deutsche to put the CDU completely on the spot; but they remain careful about what they wish for.
The third most commonly mentioned bank in the ‘troubled’ category is SocGen. Look at the numbers on French banking exposure to Greece, and you will see how massively the French dumped their toxic waste onto the ECB after 2010. In some ways, that’s bad for Greece (dumping Athens wouldn’t collapse the French system today) but like every country in the West, there’s lots of sub-sub-glub-glub underwater subprime in there.
In Italy, multiply bailed-out Banca Monte dei Paschi di Siena SpA is not widely expected to make it to the finishing line. Italy’s central bank continues its own Peter-pays-Paul version of the endless circulating money game with MdP, but that show is now so obvious to everyone, it’s hard to see how it can stay on the road, let alone finish up anywhere safe. Standard & Poor’s cut the ratings of 18 Italian banks during the last week of July saying the “recession will be longer than expected”. I must confess I don’t know of anyone who expected it to be short, but there you go.
However, the Slog favourite for Collapse of the Century so far remains Royal Bank of Scotland. I said last week that all this bollocks about the taxpayers getting their money back was, er, bollocks, and this morning Vince Cable as good as admitted that, by saying RBS “will be in public hands for another five years”. It’s actually going to be a large piece of Stonehenge on our backs, but let’s not split hairs. It is a gigantic collapse waiting to happen, and in my view it is inevitable. I really do not see how breaking it up is going to help.
Last but not least, The Cooperative Bank is technically insolvent already. As I explained recently, it is the Bailin Which Dare not Speak it’s Name down Westminster way, so dearly would all Parties in da House like this turd to be flushed away. But it refuses so to do….and the longer they dither, the worse it’s going to get. Basically, what’s happening here is that ‘bondholders’ (who are really old and poor folks converted from depositors some time ago) are going to be treated the same as any trick-or-treat Hedge Fund, in order to bail out the larger account customers….who just happen to include the LibDems, the Labour Party, and the TUC. The Co-op and the Unions in turn bankroll a great many Labour MPs – including Ted Testicles himself, a bloke who isn’t going to emerge from this scandal with a nice smell attached to his body.
In short, thinking that the bailin template is a hastily flung together and somewhat academic exercise is fine if you want to lose the shirt off your back. Otherwise, withdraw such money as you can, and buy any asset that you can. It doesn’t matter if its canned food, gold or a motor bike: just do it – and get a move on.
In the meantime…..
Edited by WD
_______________________________
The new EU bailin law was hurried through alright…but the template was premeditated
How imminent bank collapse fears forced the Eunatics to act
Deutsche Bank…..two left feetAlmost exactly a year before the Cyprus bailout, EU Directive 2012/0150 COD was drafted with a view to creating a template for future banking collapses. Its proposals mirror pretty exactly what happened in Cyprus – viz, a prototype bailin. Written in June 2012, it points clearly to the conclusion that Cyprus was a premeditated crime on the part of Brussels-am-Berlin.
The most obvious reference in the document is this one (my emphasis):
‘In any case, if the institution under resolution fails and does not have sufficient funds to repay depositors, the universality of proceedings ensure the equal treatment of creditors irrespective of their nationality, place of residence or domicile…..In order to ensure the equal treatment of creditors, [EU] Company Law Directives contain rules for the protection of shareholders and creditors. Some of these rules may hinder rapid action by resolution authorities.‘
Brussels sources say those safeguards have been quietly, but totally, dumped. The new Law – part of a batch relating to the Monetary Union road map – is, if you like, a post-rationalisation of what happened in Cyprus. But it is also a preparation for what the Eunatics know is coming down the line. What started off as a premeditated plan has suddenly become a matter of urgency. Here’s why.
My Madrid source has been saying for several months now that the Spanish banking system is being quietly propped up by the usual Peter-pays-Paul bollocks Draghi comes up with. Global Economic Analysis blogger Mish sums up the reality thus:
‘Spain’s exposure to Portuguese sovereign debt and unrealized losses on real estate loans are two reasons a collapse is inevitable….Spanish bank exposure to Portugal today is higher than French bank exposure to Greece in early 2010….A restructuring of Portuguese sovereign debt similar to the one completed by Greece, which involved haircuts of over 50%, would wreak havoc on Spain’s banking system.’
Well beyond Spain, Europe’s biggest banks – which have more than doubled their highest-quality capital to meet tougher rules – still have a long way to go in order to satisfy EC/ECB regulators…hence all the scurrying about with rights issues of late. But ringing and Skyping around the Continent last Friday, three large banks were on most people’s lists….and seven were mentioned in all.
Perhaps one of the more surprising of these is Barclays (not domiciled in the ezone, but huge across the EU) in that many observers see the banks’ rights issue as likely to be a flop. This is accurately reflected by the fact that its shares closed nearly 6% lower after the bank said last month that it would issue £5.8bn in shares to meet new EU requirements. More disturbing are the recurrent rumours about “cans full of worms” in the bank, although there is nothing specific to go on.
The most worrying potential casualty – certainly for the inhabitants of the Chancellery – remains DeutscheBank. The main contention is that the bank has taken a colossal hit on currency swaps. Last month Max Keiser described the bank as ‘on suicide watch’, and in June FDIC vice chairman Thomas Hoenig called Deutsche “horribly undercapitalised”. German Sloggers continue to insist that DB is being secretly propped up with government money. There are of course elements in Frankfurt who would love to see more solid bad news from Deutsche to put the CDU completely on the spot; but they remain careful about what they wish for.
The third most commonly mentioned bank in the ‘troubled’ category is SocGen. Look at the numbers on French banking exposure to Greece, and you will see how massively the French dumped their toxic waste onto the ECB after 2010. In some ways, that’s bad for Greece (dumping Athens wouldn’t collapse the French system today) but like every country in the West, there’s lots of sub-sub-glub-glub underwater subprime in there.
In Italy, multiply bailed-out Banca Monte dei Paschi di Siena SpA is not widely expected to make it to the finishing line. Italy’s central bank continues its own Peter-pays-Paul version of the endless circulating money game with MdP, but that show is now so obvious to everyone, it’s hard to see how it can stay on the road, let alone finish up anywhere safe. Standard & Poor’s cut the ratings of 18 Italian banks during the last week of July saying the “recession will be longer than expected”. I must confess I don’t know of anyone who expected it to be short, but there you go.
However, the Slog favourite for Collapse of the Century so far remains Royal Bank of Scotland. I said last week that all this bollocks about the taxpayers getting their money back was, er, bollocks, and this morning Vince Cable as good as admitted that, by saying RBS “will be in public hands for another five years”. It’s actually going to be a large piece of Stonehenge on our backs, but let’s not split hairs. It is a gigantic collapse waiting to happen, and in my view it is inevitable. I really do not see how breaking it up is going to help.
Last but not least, The Cooperative Bank is technically insolvent already. As I explained recently, it is the Bailin Which Dare not Speak it’s Name down Westminster way, so dearly would all Parties in da House like this turd to be flushed away. But it refuses so to do….and the longer they dither, the worse it’s going to get. Basically, what’s happening here is that ‘bondholders’ (who are really old and poor folks converted from depositors some time ago) are going to be treated the same as any trick-or-treat Hedge Fund, in order to bail out the larger account customers….who just happen to include the LibDems, the Labour Party, and the TUC. The Co-op and the Unions in turn bankroll a great many Labour MPs – including Ted Testicles himself, a bloke who isn’t going to emerge from this scandal with a nice smell attached to his body.
In short, thinking that the bailin template is a hastily flung together and somewhat academic exercise is fine if you want to lose the shirt off your back. Otherwise, withdraw such money as you can, and buy any asset that you can. It doesn’t matter if its canned food, gold or a motor bike: just do it – and get a move on.
In the meantime…..
Edited by WD
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