Cyprus style bailouts coming to Canada

Considering Canada is currently governed by the Conservatives, this is great news for the Liberals and the NDP.

 

^The NDP or Liberals were going to win anyways, depending on whether Canadians wanted some solid policies, or pretty boy Justin.

The CDIC (Canada Deposit Insurance Corporation), I think, will be the first lever applied rather than this.

With that said---

Now if a bank like Bank of Montreal failed---

good Canadian prudential attitude with securities and accounting, boys, it has to be good for something.

Either way, whether it's through taxpayer money or depositor money, someone has to re-cap the banks, because the modern economy sadly depends on credit cycles.

This theoretically puts more pressure on banks so that this won't happen, as wiping their depositors is serious egg on face.

if it happens, yeah, then all bets are off.

 

The first would be shareholders, who would be wiped out, then bond holders will get converted to equity.

This doesn't really change anything for depositors, the first $100,000 is guaranteed and anything over that, they're first in line for whatever assets are left at the bank. This is more of a declaration that the government won't use taxpayer money to save the bond holders if they allow the banks to do something stupid and/or risky.

 

I think you post too much!

 

let me guess - you're one of the idiots who think Greece or Zimbabwe hyperinflation is coming here.

 

Doesn't Canada have like a tenth of the people and twice the oil of the US?

 

?

the whole point of a Cyprus-style takeover is to make depositors assume the risk first, rather than equity holders or bond holders. this is to stop a market panic on bank capital/equity that would drag a bank that needs re-capping even further into the abyss.

With that said, given the CDIC's existence, it makes no sense to levy those with under $100,000. My argument is you are probably going to see a disproportionate levy on the over $100,000 accounts, or failure of the CDIC to pay up, both of which would be disastrous.

 

Wait - the Cyprus bailout wiped out the equity holders, at the very least, did it not? I know their second largest bank is being would down, so I'm assuming their debt holders got wiped out too. I thought the point was to make the depositors assume the cost of the bailout instead of the taxpayers or the rest of Europe's governments.

 

http://www.reuters.com/article/2013/03/29/bankofcyprus-idUSL5N0CL1LU20130329

The point of the Cyprus-style bailout is to protect equity holders without taxpayer funds being used, by essentially using depositor funds instead, and then forcing depositors to prop up equity prices by forcing a gun to their faces and accepting bank equity as "payment".

A bank failing (no re-cap) essentially means the equity holders and bond holders are wiped out, or really given liquidation value depending on their priority in bankruptcy proceedings, a very messy affair all in all.

I think Laiki was just so bad, that even this bail-in mechanism could not save the bank itself, which is why it is in administration. Bank of Cyprus is closer to the "ideal plan" envisioned by European authorities.

http://www.ft.com/intl/cms/s/0/1dd675fc-931d-11e2-9593-00144feabdc0.html#axzz2PHKddzP0

 

But my point is that this "new" Canadian government policy is the opposite, and is an actual declaration that there are no implicit guarantees to bank shareholders and bondholders and they WILL suffer any loss before depositors.

This is meant to rein in banks, to avoid them doing dumb stuff because they won't be bailed out by taxpayer money.

 

They have a ridic amount of oil sands. Cost of production is higher though.

 

Whenever someone suggests ending bailouts, the response always includes some combination of "meltdown" "collapse" "abyss".

Gotta keep the sheep scared to keep taking their money.

All you have to do is ensure 3rd parties aren't unwillingly assuming any risk, and these problems go away. The moment you use taxpayer money, you start to see unhealthy (but rational) risk taking.

But we want risk, people risking their wealth in hopes of more in the future is the only way economies grow.

Of course, the left wants to do the exact wrong thing. Limit what risks people are allowed to take, and use taxpayer money to subsidize/guarantee what risks they permit us to take.

If you protest, you are in favor of meltdowns and collapse and going into the abyss, or something.

 

And what if it's true? Every time people say things like this, it's a pretty clear sign that they don't know much about international finance. The system sucks, but the way it's setup, meltdown is exactly what you'd have gotten without TARP - this is pretty much clear as day to anyone with any significant finance background. It's a bit less clear what would happen, for example, if Cyprus collapsed.

Interesting, given that the first bailouts in the most recent series were started and pushed by the Bush Administration, which had to go beg Pelosi to get the House on board. The S&L fiasco bailouts were also done during Republican administrations. Protecting banks and wealthy people has historically been a policy supported by conservatives. The Cyprus bailout was not pushed by leftists, by any stretch.

 

Since "meltdown" and "collapse" are figurative terms (nothing is melting or collapsing), perhaps you could describe how this would manifest itself.

Elected Republicans follow free market principles only slightly more often than Democrats. Desire for power and control usually trumps ideology (or it is the ideology).