“Bail In Regime” Sees UK Banking System Downgraded To "Negative"
UK Banking System Downgraded To Negative Due To “Bail In Regime”
Bank of England plans to make bondholders and depositors bear the cost of bailing out failing banks has led Moody’s to downgrade its outlook on the UK banking sector.
The rating agency said that it had changed its outlook for the UK financial system from “stable” to “negative”, citing the developing global “bail in regime” of creditor and depositor bail-in.
Depositors in some Cyprus banks saw 50% or more of their life savings confiscated overnight.
Central banks claim that it is an attempt to ensure that taxpayers do not pick up the bill in the event of a bank getting into trouble again. However, it appears to be the case that the stealth global bail-in regimes brought in by the Federal Reserve, Bank of England and ECB are again protecting certain banks at the expense of creditors including depositors and potentially the wider economy.
There is a real risk that individual savers and companies will be forced to bail out profligate banks and have their savings and capital confiscated as happened in Cyprus. There has been little information provided and little debate about the risks and ramifications of bail ins.
In the financial crisis of 2008, UK taxpayers were forced to provide more than £60 billion in direct support to HBOS and Royal Bank of Scotland as they came close to collapse, as well as hundreds of billions of pounds in taxpayer-guaranteed loans and loss insurance.
Under the incoming credit bail-in regime, bondholders would be the first in line, after shareholders, to take any losses - then depositors.
Officials led by Mark Carney, the Bank of England governor, are attempting to bridge sharp differences among leading G20 countries as they prepare a landmark set of proposals aimed at ensuring bail-in legislation is adopted in G20 nations, the Financial Times reported two weeks ago.
Talks under the auspices of the global Financial Stability Board (FSB) over the summer are approaching a key stage as officials aim to clinch an agreement on bail-ins and the bailing in of creditors including depositors of banks.
Japan is one of the countries with problems with bail-in plans amid concerns that they are not easily compatible with the structure of its banking system. Its banks are heavily deposit-funded, and officials are uncomfortable about the idea of bail-ins.