Why Is The EU Forcing European Nations To Adopt ”Bail-In” Legislation By The End Of The Summer?

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By Michael Snyder

Are they expecting something to happen?  As you will read about below, the European Union says that any nation within the EU that does not enact “bail-in” legislation within the next two months will face legal action.  The countries that are being threatened in this manner include Italy and France.  If you fast forward two months from this moment, that puts us in early August.  So clearly the European Union wants everything to be squared away by the end of the summer.  Is there a reason for this?  Are they anticipating that something really bad will happen in September or thereafter?  Why such a rush?

We all remember what happened when major banks were “bailed out” during the last financial crisis.  A tremendous amount of taxpayer money was given to the big banks to help prop them up so they wouldn’t fail.  This greatly upset a lot of people.

Well, when the next great financial crisis hits Europe, banks are not going to get “bailed out” this time.  Instead, we are going to see “bail-ins”.

So precisely what is a “bail-in”?

Essentially, what happens is that wealth is transferred from the “stakeholders” in the bank to the bank itself in order to keep it solvent.  That means that creditors and shareholders could potentially lose everything if a major bank in Europe fails.  And if their “contributions” are not enough to save the bank, those holding private bank accounts will have to take “haircuts” just like we saw in Cyprus.  In fact, the travesty that we witnessed in Cyprus is being used as a “template” for much of the new legislation that is being enacted all over Europe.

The bottom line is that not a single bank account in the European Union will ever be truly safe again.

By this time, everyone in the EU was already supposed to have enacted “bail-in” legislation, but some countries in Europe have been dragging their feet.  So now the European Commission (the executive body of the European Union) is giving them a hard deadline.  According to Reuters, any nation that has not passed “bail-in” legislation within two months will be subject to legal action…

The European Commission on Thursday gave France, Italy and nine other EU countries two months to adopt new EU rules on propping up failed banks or face legal action.

The rules, known as the bank recovery and resolution directive (BRRD), seek to shield taxpayers from having to bail out troubled lenders, forcing creditors and shareholders to contribute to the rescue in a process known as “bail-in”.

So which countries are being threatened?

It turns out that there are 11 of them.  The following comes from Mark O’Byrne

The article “EU regulators tell 11 countries to adopt bank bail-in rules” reported how 11 countries are under pressure from the EC and had yet “to fall in line”. The countries were Bulgaria, the Czech Republic, Lithuania, Malta, Poland, Romania, Sweden, Luxembourg, the Netherlands, France and Italy.

France and Italy are two countries who are regarded as having particularly fragile banking systems.

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But why only two months to get this done?

When I was in law school, I took an entire course on European Union law.  Normally, things in Europe take a very long time to get done.  It is out of character for the European Commission to rush to get something like this done so quickly.

Could they be anticipating that this legislation will need to be put into use very soon?

What we do know is that bonds in Europe have already been crashing, and it appears that the European Central Bank is starting to lose control over European financial markets.

And we also know that there has been a sustained bank run in Greece.  In fact, it is being reported that 700 million euros were pulled out of Greek banks on Friday alone.  Personally, I think that anyone that still has any money in Greek banks is absolutely insane.  Some day in the not too distant future, Greek bank account holders are going to be in for a “haircut” just like we saw in Cyprus.  The following comes from Zero Hedge

While the Greek government believes it may have won the battle, if not the war with Europe, the reality is that every additional day in which Athens does not have a funding backstop, be it the ECB (or the BRIC bank), is a day which brings the local banking system to total collapse.

As a reminder, Greek banks already depends on the ECB for some €80.7 billion in Emergency Liquidity Assistance which was about 60% of total deposits in the Greek financial system as of April 30. In other words, they are woefully insolvent and only the day to day generosity of the ECB prevents a roughly 40% forced “bail in” deposit haircut a la Cyprus.

But of course Greece will only be just the beginning.  In the end, I expect major banks to fail all over Europe as we head into the greatest financial crisis that Europe has ever seen.  Bank account holders all over the continent could end up having to take “haircuts”, and that would just make the coming deflationary cycle in Europe a lot worse.

And I actually expect events in Europe to start accelerating greatly by the end of this calendar year.  Apparently the top dogs in the European Union are also concerned about the immediate future, because they are rushing to get “bail-in” legislation passed in every nation in the EU by the end of the summer.

Fortunately, the United States has not moved in a similar direction – at least not yet.  It is always possible that during an “emergency situation” anything can happen.  We saw that in Cyprus.  But for the moment, European bank accounts appear to be more vulnerable than U.S. bank accounts.

Not that any of us should have much confidence in the major banks in the United States either.  Since the end of the last financial crisis they have become more reckless than ever.  At this point, the six largest banks in this country collectively have 278 trillion dollars of exposure to derivatives.  A day is coming when the “too big to fail” banks will actually start failing, and that will absolutely cripple our economy.

We are moving into a time of great financial instability.  During such a time, one of the keys will be to not have all of your eggs in one basket.  That way it will be more difficult for your wealth to be wiped out by a single event.

So what other advice would you give to people that are wondering how to deal with the coming global banking crisis?  Please feel free to add to the discussion by posting a comment below…

This article first appeared here at the Economic Collapse Blog.  Michael Snyder is a writer, speaker and activist who writes and edits his own blogs The American Dream and Economic Collapse Blog. Follow him on Twitter here.


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13 Comments on "Why Is The EU Forcing European Nations To Adopt ”Bail-In” Legislation By The End Of The Summer?"

  1. I would suggest that if you have anything more then 100k USD, convert it to non-paper assets asap. and watch for more signs that the system is collapsing.

  2. Black Dynamite | June 6, 2015 at 3:12 pm | Reply

    A lot of people are predicting a economic collapse in September 2015.
    It looks like even the banksters are telling you without telling you.
    BD

  3. Just say ‘no’ to neo-feudalism and slavery….instead, arrest the bankers and their traitor politicians.

  4. The Bank of England and the FDIC worked out there rules in dec 2012
    see https://www.fdic.gov/about/srac/2012/gsifi.pdf
    I believe Dodd-Frank provides the structure for the bail ins in the US – which will come too

  5. Citizens of Europe, FORCE your leaders to withdraw from the EU. If they dont, hang ’em! On second thought, hang ’em first, then withdraw. Won’t buy much time, but will a little.

  6. keepyourpower | June 6, 2015 at 10:56 pm | Reply

    If we become a member of the TPP…we will see the same here. We will lose our sovereignty, Our Bill of Rights, especially our right to own guns..and ANY person, from ANY country, can come here, without a Visa..without being vetted…to “work” here. Do we not have enough people out of jobs here? We know they cook the books, on the number of people out of work. Sooner or later…you run out of other people’s money…then what will we do? Everyone, but the elite, will be starving, in the streets. Riots everywhere…burning ..looting…murders etc. Don’t believe me…sit on your fat behind, and watch.

  7. My situation is resolved. I reviewed, foresaw, analyzed, and anticipated this scenario in 1976. Ron Paul was a libertarian then. First … get a few useful trades … I’m a master electrician n plumber with a BS in Accounting. The rest of my advice would be like sharing a shortcut … very soon everyone takes that same shortcut and your big mouth spoiled it. Most of you are patriot elitists and believe in US exceptionalism when the whole point is survival daily. Think about why your ancestors left the old country … things were so bad they had no choice. This is how countries lost their best and brightest. Thus u witness the socialists of the EU.

  8. Cat-astrophe | June 6, 2015 at 11:13 pm | Reply

    Canada enacted bail in laws last year.

  9. Without major change the EU is finished . Politicians have forgotten who elects them , and the results of current elections in many countries . With the arrogance of EU politicians and the decline in democracy , the EU can do nothing but decline . The Commission has been unable to resolve the economic problems of the EU and unemployment , and even more so the problem of illegal migration with all its risks for the future of the EU , and do nothing but generate excessive legislation which is making EU businesses non-competitive at the world level .
    The rot in the EU started with the very opaque Lisbon Treaty , and has continued since .

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