On January 1st, 2016, the new bail-in regime became law putting at risk the deposits of savers and companies in the EU.

EU countries join the UK, the U.S., Canada, Australia and New Zealand in having plans for bail-ins in the event of banks and other large financial institutions getting into difficulty. It is now the case that in the event of bank failure, personal and corporate deposits could be confiscated.

The bail-in architecture was seen in the Cyprus bank bail-ins that were seen in 2003. Then, deposits of over €100,000 were confiscated in “haircuts” in order to bail out banks in Cyprus. Now the exact same principles that were used in Cyprus – which we were told was unique and a one off – are going to apply to all of Europe.

Bail-ins and the risks they pose have largely been ignored in most of the media. In one of the very few articles on bail-ins in recent days, Hugh Dixon of Reuters Breaking Views has looked at bail-ins but has focused on the “political risks” rather than that posed to savers and indeed company depositors:

The European Union entered a brave new world of bank “bail-ins” at the start of 2016. Europe has wasted so much taxpayers’ money on bailing out bust banks in recent years that it is right to try to get investors to help foot the bills in future. However, the tough new regime carries big political risks.

The article, ‘EU enters brave new world of bank bail-ins’, is interesting despite ignoring the financial and economic risk of bail-ins – they would likely be very deflationary in a world already beset by deflation – and can be accessed here

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