The USA, UK and EU are Planning to take your Savings: A Whiff of Desperation in the Air?

(Originally published on 22 March 2013 at Economics for the Rest of US) 

A recent paper by the Bank of England and the American Federal Deposit Insurance Corporation (FDIC)  demonstrates that both governments have a plan to take your savings money in a financial crisis.  Scarily enough, the paper was published in December 2012.

As recent events in Cyprus, Spain, Portugal, Greece and Italy have shown, an unthinkable financial crisis can actually emerge at any time – just like it did in 2008. The 2008 crisis required trillions of dollars (pounds, euros) to bail out broken banks.

So, you have to ask yourself:  Could my government take my money out of my savings account?

The answer is almost every case is “Yes”.  In the USA, the UK and the EU,  not only is it possible, but the reality is that two of the governments have just recently discussed how they would take your money.  As with almost all economic writing, it lacks clarity and appears bland, but when read and reread it several times, it is chilling.

The title of the paper is Resolving Globally Active, Systemically Important, Financial Institutions.

A translation is necessary here.  To an economist or banker the term “resolving” means “giving money to.” “Globally active” means a bank that has operations in more than just one country.   The term “systemically important” is banker speak for “we think this bank is too big to fail and therefore we have to bail it out.”  The term “financial institutions” refers to banks as well as large insurance companies such as Lloyd’s of London or AIG in America.

The title of this paper is actually “In the event of another financial crisis like the one in 2008, we are going to take money from savers and tax payers and give it to the international banks which are holding us as financial hostages by being too big to fail.

As an aside, this is also an indirect admission that the problems that caused the 2008 financial crisis have not been addressed.

Have a look at the following key paragraph, and then see the explanations below.

34. The U.K. has also given consideration to the recapitalization process in a scenario in which a G-SIFI’s liabilities do not include much debt issuance at the holding company or parent bank level but instead comprise insured retail deposits held in the operating subsidiaries. Under such a scenario, deposit guarantee schemes may be required to contribute to the recapitalization of the firm, as they may do under the Banking Act in the use of other resolution tools. The proposed RRD also permits such an approach because it allows deposit guarantee scheme funds to be used to support the use of resolution tools, including bail-in, provided that the amount contributed does not exceed what the deposit guarantee scheme would have as a claimant in liquidation if it had made a payout to the insured depositors. That is consistent with the contribution requirement that is already imposed on the Financial Services Compensation Scheme in the U.K. in the exercise of resolution powers10 and simulates the losses that would have been incurred by those deposit guarantee schemes during bank insolvency. But insofar as a bail-in provides for continuity in operations and preserves value, losses to a deposit guarantee scheme in a bail-in should be much lower than in liquidation. Insured depositors themselves would remain unaffected. Uninsured deposits would be treated in line with other similarly ranked liabilities in the resolution process, with the expectation that they might be written down.

(See the full document at: )

The abbreviation RRD refers to the European Union Recovery and Resolution Directive.  In other words, the joint UK and USA paper actually has its roots in the large European Union, so the concepts in this paper could easily be applied to the other countries in the EU.  (Hello France and Belgium and yes even Germany!!)

The following words are key to the intent  of the authors:  it allows deposit guarantee scheme funds to be used to support the use of resolution tools, including bail-in.  This means that money that is intended to be given to depositors (savers) in the event of a bank failure can instead be given to the bank itself as a means of resolving the crisis.

In other words, depositors are told that the first 100,000 dollars (pounds, Euros) of their savings are guaranteed by a government program so that even if the bank fails, the depositor will get their money back up to the agreed limit.

Now, the new plan is to give that guaranteed money to the bank, rather than the depositor.

The theory behind this is explained in the second underlined section. These economists have the idea that if the bank is going to fail, why not give it the guaranteed money to the bank so it can continue operations, and small depositors will then not lose any money as the bank keeps going.  They also appear to reason that larger depositors (more than 100,000) may lose money in the event, but that this plan will be cheaper overall.

On the surface, this accounting trick may sound reasonable, but the plan is deeply flawed.

First, it breaks the guarantee that you will get your money back if there is a bank failure. The bank gets it.

More importantly, it does not address what will happen after the deposit guaranteed money is given to the bank.  The flaw is that if the public becomes aware of the money transfer – and they will – then the large depositors and bond holders will lose faith in the institution.  They will quietly take out their money as soon as they can, and then the cycle starts over again.The outcome is that the bank will fail again.  Only this time, the money that should have gone to the small time depositors from the FDIC is already gone – taken by the bank!  So another bailout is needed. This is simply a wealth transfer from the government to the banks at the expense of the saver and taxpayer.

Behind all the laws, rules and economic jargon that no one can really understand, there are some real world facts that cannot be changed.

They are:

1.  Most of the advanced Western democracies have crippling debt levels that they cannot fix through increased austerity, taxes or increased stimulus.  They will need to find more money and they need it soon.

2.  The governments and banks of the advanced democracies are run by persons who have a significant interest in maintaining the status quo which gives them their power and wealth.

3.  When government and banks need more money, they will get it. They will change the laws to make this happen.

4.  Savers have money, debtors do not.

5.  Governments and banks have multiple ways of getting this money, either though taxes, fees, low interest rates or inflation or – most simply – just taking it as they are now discussing in this paper.


The belief that your money is safe in a bank due to the government guarantee on the first 100,000 is no longer a valid concept.  Those that have the power (Banks and Governments) may need this money soon.  If you have it, they will find a way of taking it.

This is economics as it is for the rest of us. Savers beware!


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