EU Deposit Insurance, a Bank Crisis in Italy and Greece, and the Coming Ban on Cash

Last week we investigated nonperforming EU loans and an EU proposal to freeze accounts if a run on a bank starts.

Today let’s investigate the EU’s deposit insurance scheme with the likely result being a ban on cash.

On July 19, with little media publicity, the EU Single Resolution Board issued a statement with this exact title: Press Release – Banking Union – Single Resolution Board collects €6.6 billion in annual contributions to the Single Resolution Fund, now reaching €17 billion in total.

For starters, there is no “banking union” to speak of. That aside, let’s explore the deposit insurance goal and where things are now.

As of 30 June 2017, the Single Resolution Board (SRB) had collected €6.6 billion from 3,512 institutions in annual contributions to the Single Resolution Fund (SRF). In total, the SRF now holds an amount of €17.4 billion.

The SRF pools contributions which are raised on an annual basis at national level from credit institutions and certain investment firms within the 19 participating Member States. These contributions are calculated on the basis of the methodology set out in the Commission Delegated Regulation (EU) 2015/63 and Council Implementing Regulation (EU) 2015/81 and are collected via the National Resolution Authorities (NRAs).

The SRF is being built-up over a period of eight years (2016-2023). The target size is intended to be at least 1% of covered deposits by end 2023. 3,512 institutions banks and investment firms have to contribute to the Fund.

“The Single Resolution Fund ensures uniform practice in the financing of resolutions within the Single Resolution Mechanism. It is an important safeguard that can be accessed as last resort only. In addition we have Loan Facility Agreements with all Member States in place and are supporting the efforts of Member States to put in place an effective common backstop.” – Elke König, Chair of the Single Resolution Board

The Goal

That’s the entire press release, as written. The goal is to create an emergency “safeguard” that can only be used as a “last resort”.

The target goal is “at least 1% of assets” and it will take until 2023 to collect this reserve.

SRF vs NPLs

At hand right now the SRF has €17.4 billion in the emergency safeguard.

As noted last week, there are Over €1 Trillion Nonperforming EU Loans.

Italy alone has €276 billion in non-performing loans. Greece and Cyprus have NPL ratios of 46% and 45% respectively. Bulgaria, Croatia, Hungary, Ireland, Italy, Portugal, Slovenia, and Romania all have NPL ratios between 10% and 20%.

Spotlight Greece

46% of loans Greek bank loans are non-performing. The Greek sum is a very significant €115 billion.

On December 21, 2016, John Mauldin noted Greece’s Debt Problem Has Reached a Dangerous Point.

Here is the key sentence: “Nearly seven years, 13 austerity packages, and three bailouts (worth a running total of $366 billion) later, the Greek economy is still struggling.”

Bailouts? Who? Where?

Not Greek citizens. Not Greet banks.

Rather, $366 billion was used to bailout Greek creditors, primarily Germany.

It will take until 2060 to pay back that “bailout” according to the Wall Street Journal’s report of Greece’s Debt Due, published February 19, 2015 and updated July 28, 2017.

Payback Timeframe

To pay back the alleged bailout, Greece is supposed to maintain a primary account surplus of 3% of GDP indefinitely. A primary account surplus means Greece will collect more in taxes than it spends, not counting interest on its debt.

The odds that will happen are roughly zero percent.

Even if the Single Resolution Fund threw its entire emergency fund of €17.4 billion at Greece, it would not do a damn thing for either Greek debt or Greek non-performing loans.

SRF is a Joke

Simply put, the SRF is a complete joke. It’s only purpose is to pretend that something meaningful is taking place when clearly it’s not.

Target 2

On top of it, a quick check of the Bundesbank Target2 Balance shows peripheral Europe owes Germany a new record high €860 billion!

EU Banking System is Insolvent

• The deposit insurance scheme is a joke.

• The Target 2 system is a fundamental flaw of the Eurozone. Target 2 debts will not be paid back,

• Nor will Italy, Greece, and other countries collect on non-performing loans.

• To prevent runs on banks the EU is investigating a scheme to freeze bank accounts. The next logical step is ban on cash altogether

• The EU banking system is insolvent.