Scoop Election 08: edited by Gordon Campbell

Gordon Campbell on the official emergency plan to steal from your bank account

March 20th, 2013

“Some rob you with a six gun, some with a fountain pen” – Woody Guthrie

Put your money in the bank, not under the mattress. That’s always been a mantra, especially for people who don’t want to speculate in property or the sharemarket, and who don’t want to run the risk of putting their savings into shonky finance companies. Belief in the stability of banks is one of the tentpoles of the economy – so the revelation from Green Party co-leader Russel Norman that the government and Reserve Bank are about to give themselves the power to raid the deposits of ordinary bank customers in the event of a banking crisis seems simply outrageous.

On the other side of the world, the government of Cyprus has just had to back down and retract a similar idea in the face of public outrage from ordinary bank customers. At least in Cyprus, this “steal 10% of the deposits to bail out the banks” plan could be rationalized as a way of part – financing an EU loan, in a situation where many of the people most affected would have been rich Russians using Cyprus as a tax haven. Here, there is no such justification. Even the Economist magazine has denounced the money grab in Cyprus as “unfair, short sighted and self defeating.” Want to trigger a run on the banks right across Europe? Plan to steal money from depositors, and give it to bankers.

In New Zealand, an almost identical money grab plan in the event of an emergency has been given the name Open Bank Resolution Policy (OBR).It is due to be locked into place here in June by stealth – or would have been, until Norman blew the whistle on it yesterday. Norman’s original press release is here. Interest.co.nz has more details of the OBR plan and an interesting discussion thread on the subject here. The Reserve Bank’s rationalisation of its OBR policy can be found here. The Economist’s denunciation of such actions is here. It runs along these lines:

…What would your calculation be? That you would never be treated like the people in Cyprus, or that a precedent had been set…? The chances of big, destabilising movements of money (into cash, if not into other banks) have just shot up. The second error is one of equity…There is no moral imperative for whacking Cypriot widows and leaving senior bank bondholders untouched, as appears to be the case here; or not imposing any losses on sovereign-debt investors in Cyprus; or protecting depositors in the Greek operations of Cypriot banks, as has also happened. The euro zone may cloak this bail-out in the language of fairness but it is a highly selective treatment.

But then the banks and a certain class of investors have always had ‘highly selective’ treatment from the Key government. Ordinary depositors are being treated under the OBR as fair game if things go sour – evidently, even the low interest offered by banks carries a major investment risk – but that is not how the more affluent speculators in South Canterbury Finance were treated. They were bailed out. The difference of approach is being reflected in the response to the alternative idea Norman has tabled: that the banks should be required to insure themselves against failure, such that in the unlikely event of an emergency, the depositors’ funds would be protected.

Yesterday, the Prime Minister rejected that insurance idea as being too costly for the banks and their customers. No, he wasn’t joking. Think for a moment about the obscene levels of profit that the Aussie banks have been taking out of New Zealand in recent years. Yet they can’t afford an insurance premium and would be duty bound to pass the cost onto their customers? Wow. I thought these banks were supposed to rock stable – if so, surely the insurance premiums for such robust institutions against the unlikely event of failure cannot really wipe out those healthy profit margins, can they? So far, the Reserve Bank or the government are not saying how big a slice from our bank deposits they are planning to take if a bank happens to fail – in Cyprus the planned grab was nearly 10% levied from every bank account. In New Zealand, the intended ratio seems to be: whatever it takes, will be taken.

The politics of this issue have been interesting. The revelation about the OBR has been a real coup for the Greens. Meanwhile Labour – as usual – has been slow out of the traps, and short on the principles involved. Ultimately, Labour’s shadow Finance spokesperson David Parker has reportedly come up with the idea of exempting the first $30,000 of deposits in the event of an emergency bank bailout – as apparently, they do in Australia. (All that would mean is that wealthier people would split up their acccounts to get themselves under the $30,000 ceiling.) More to the point, Parker’s solution ignores the issue of fairness raised by Norman – as to why depositors should be carrying the burden at all, when the insurance option is on the table.

That’s the bottom line. Surely, the Aussie-owned banks that can see fit to extract extortionate fees, can afford to set some of their profits aside to insure themselves against failure, and thereby show that they treat the protection of the remaining monies that their customers have in their accounts as a prime part of their duty of care? I wouldn’t mind betting that the first bank that said: “We’re bailing out of the OBR and taking out our own insurance against the unlikely event of a failure” would see a stampede of new customers onto their premises. But that’s not how cartels work.

ENDS

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    1. 20 Responses to “Gordon Campbell on the official emergency plan to steal from your bank account”

    2. By Kevin McCready on Mar 20, 2013 | Reply

      It’s also time to get rid of no-interest accounts in NZ. Why should banks use our money and pay no interest?

      The first political party to announce deeming accounts will get a huge boost from the electorate. Deeming accounts is where the law says all banks have to pay a minimum “deemed” rate of interest on all accounts.

      This stops banks ripping off little old ladies and uninformed depositors and saves ALL of us wasting time shuffling money between our no-interest accounts and other accounts. God knows how many person hours NZers waste on this per year!!

    3. By David on Mar 20, 2013 | Reply

      And still most New Zealanders will continue to think the Green Party is a bunch of “loonie greenies” and give their vote to Labour if they don’t like National.

    4. By David on Mar 20, 2013 | Reply

      PS It’s the equivalent of customers of Mitre 10 (or any other business) being forced to make a financial contribution to keep it running if it goes broke.

    5. By Mike Davey on Mar 20, 2013 | Reply

      Why would the government even contemplate bailing out Aussie banks with NZ taxpayers money. Do an Iceland and kick them out along with the National party!

    6. By rohana on Mar 20, 2013 | Reply

      Hardly a scoop. NZ Herald November 2011
      http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10765832

      Greens are just grabbing some free fear porn exposure.

      Last I saw NZ still had sovereign currency & wasn’t begging for loans from all & sundry.

      Healthy NZ banks did pay to be covered under the deposit guarantee that ended in about 2011 – paid for insurance not required in the case of the big 4 just so they were not seen in a poor light next to the likes of the finance companies. Those same Finance companies that eventually used the guarantee and have mostly been outed.
      Of course they don’t want to pay unnecessary insurance again.
      Putting NZ into the company of basket case EU countries makes Norman a git of the first order.

    7. By Alan on Mar 20, 2013 | Reply

      The argument that Insurance or guarantees are to high is silly. Most if not all other businesses have insurance for some reason or other. Why not banks.

      National should take a pasting for allowing this to sneak through and Greens could win the next election as they certainly do their homework.

    8. By Tiresias on Mar 20, 2013 | Reply

      What’s worth noting here is that under EU regulations the first EU100,000 of all deposits were already “guaranteed” against a bank failure. Hence the grab had to be dressed up as a ‘tax’ (at 6.75%) on the first EU100,000, which wouldn’t trigger the guarantee, with a levy of 9.9% on deposits over $100,000.

      In fact small (<EU100,000) depositors would have do better if the banks were allowed to fail, triggering the EU guarantee, than saving them for the benefit of the wealthy by an 'involuntary' bail-in of all investors.

      Although beaten back by Cyprus's Parliament in the face of public anger the very possibility that such a move could be considered by TPTB has damaged the public's confidence in banks perhaps irrevocably – particularly if, as seems likely – it will be sent back to Cyprus's Parliamentarians in mildly different forms over and over until they get it 'right'

    9. By Chris White on Mar 21, 2013 | Reply

      I don’t understand the snipe about South Canterbury Finance here. The only reason the government made depositors whole was because there was government back insurance here which you think you be in place generally. The lesson the government took from this is that there are serious downsides to this sort of insurance for the taxpayer.

      The biggest downside with insurance is the pricing of the risk. Right now all of the banks are stable and highly rated, so more than likely premiums for an up to $x cover for depositors wouldn’t be large. However, as the 08 crisis showed the situation can change rapidly and then ultimately the taxpayer has to pick up the bill.

      One thing you may have missed here is that in the unlikely event that depositors are forced into a debt for equity swap, that the government (i.e. all of us) will be guaranteeing the remainder. Ultimately there is a government guarantee of some description whether we like it or not, as total bank failure is something that no government would have the stomach for (see BNZ).

      BTW: Do you seriously think that the banks wouldn’t pass the costs of this hypothetical insurance on? If you do, that’s a Tui billboard right there.

      Cheers, Chris W.

    10. By Thaddeus B Munchausen on Mar 21, 2013 | Reply

      thanks Mr Campbell for keeping us informed, as usual your political comment is way above most others tho sadly it will be ignored by many more

    11. By Bob on Mar 21, 2013 | Reply

      I’m opening a Bank account in Aussie as they are forced to take insurance out over there. I want be keeping any money or using these NZ located banks now. Run on NZ Banks anyone?

    12. By Bruce Polkinghorne on Mar 21, 2013 | Reply

      Even in the US there is a federal deposit guarantee of up to $100,000. Is this all just another smoke and mirrors distraction for covering up something really big and nasty?

    13. By Earnesto 21 on Mar 21, 2013 | Reply

      Yes Bruce I think you are right, and if the criminal banksters are happy with the results they get from small Cyprus and NZ they will move on to a bigger country.
      Will it not be big insolvent banks eating up smaller banks (NZ banks).

      Its banks creating bank runs , banks making more bailout demands and telling us we have to buy more insurance from them AND bail them out.
      Insurance is banks, banks are insurance.
      Wonder why your premiums gone up if the Christchurch earthquake does not effect your earthquake risk at all.
      The earthquake strengthening plan is a scam with more borrowing from… yes from the banks.
      Is the role of “the opposition” to just inform us of all the injustice now days, do they fight it or just report it?
      Is it all just for votes, is it not sincere?

    14. By Domino on Mar 21, 2013 | Reply

      CrikeMagnet said :” The “thing” that is connecting all of these dots – Cyprus, NZ, Russia – is the International Money Fund IMF (the world bank). It is telling Cyprus they need to do this .
      Obviously, and I don’t know for sure, Russia is not playing ball with the IMF, thus the russian mafia money is the target in the Cyprus banks. Russia is saying it will bail out Cyprus by itself, if Cyprus gives it oil production and exploration rights to the big oil field it sits on.
      Iceland also told the IMF to “suck it”.
      NZ is the IMF’s next target.

    15. By Michael on Mar 22, 2013 | Reply

      I believe that it is time for the entire world to tell the big banks that we are finished dealing with them, that each nations government will take charge of their own currency, that all debt supposedly owed to these banks is immediately cancelled, and that in the future these banks are to be illegal.
      If the entire international community would agree to do this and to do a one time reset, there would be no further problem.
      Who gives a tinker’s damn whether the banks like it? Who gives a tinker’s damn whether they employ legal means to fight it?
      Let these bankers try to take what they want.
      The international community could certainly declare them an enemy and deal with them accordingly.
      Why does humanity continue to play this silly assed game with these vultures?

    16. By Andrew on Mar 22, 2013 | Reply

      Mr Cambell,

      Australian deposits are guaranteed up until AUD250,000 (since Feb 2012). Please take a look at the Australian Government: Guarantee Scheme for Large Deposits and Wholesale Funding website.

      Source: http://www.guaranteescheme.gov.au/

    17. By clairbear on Mar 22, 2013 | Reply

      I do not know the ins and outs of such items are complicated – but it strikes me – that there is another side to this story that for obvious reasons neither the Greens neither the author has considered. Let us say that the Government does not bail out a failing bank, well the NZ component anyway – what are the implications – and in the end what would happen to any New Zealand depositors at whatever level of investment – and what would be the consequential impact to the rest of the economy should a substantial number of investors loose all their money We have seen some of this and the consequential loss of jobs in retail for example. Secondly whichever party is in Government they are really just an extension of us – i.e. if the government fails, who picks up the pieces – I guess the tax payer – by being NZ citizens living in NZ and eligible to vote and pay tax I guess that means us.

      So even though this sounds and interesting sound bite and really another one of the Greens and political strategy of throwing isolated unconnected political rocks and perhaps a headline grabbing moment. – I am left wondering what the alternative is, save us all moving out banking to Kiwi bank. Which most/many of us seem to refuse to do, and even then???. Oh yes buying insurance which of course with all their profits the banks can afford – but will that lower their profits or will they simply pass on the costs in some way to us. (back to Kiwi Bank. So it seems we will pay anyway it si a question of how much and is it a direct charge or a consequential impact one.????

      My current strategy is that I have a flexi mortgage, and so I don’t really have any savings; I generally keep my account just on the negative side. Of course I do hope to change that position soon but am prepared to wait a few more years to see how this international financial crisis pans out – I think we have several more years before we can look back in hindsight and give a set of scenarios that may have ended up with better outcomes. From my perspective I think NZ is doing pretty good over all – I certainly see a lot worse off. Some countries are, I know doing better percentage wise but that is from in many cases a lower base. i.e. 10% of $1000 is $100 whereas 2% of $100,000 is $2,000.

      There are some hard choices governments must make what ever colour they are – the colour Green is yet to make any in NZ and when they have in other places in the world it seems the party breaks into two groups – the Realists and the Idealists.

    18. By Draco T Bastard on Mar 22, 2013 | Reply

      ” Wow. I thought these banks were supposed to rock stable…”

      It’s not the banks that are unstable but the entire financial system. The people at the top know it must collapse again and so they’re putting in place policies to protect themselves by taking from everybody else.

      “More to the point, Parker’s solution ignores the issue of fairness raised by Norman – as to why depositors should be carrying the burden at all, when the insurance option is on the table.”

      When you loan someone money, and a bank deposit is a loan, you’re taking the risk that you’re not going to get it back.

      Yes, insurance is the option both personal and by the bank the problem with that though is that if an entire bank collapses chances are the insurance industry won’t be able to pay out and they will also be trying not to pay out.

      IMO, it’s better to let people know that having your money in a private financial institution is a risk and that they may lose their money while ensuring that there is a government run bank where deposits are guaranteed. They can then make informed choices.

    19. By Draco T Bastard on Mar 22, 2013 | Reply

      “Government does not bail out a failing bank, well the NZ component anyway – what are the implications…”

      If one bank collapses without the money being guaranteed then the entire banking edifice throughout the world collapses. Yes, it really is that incestuous and that fragile. The entire banking system needs to be changed.

      http://www.positivemoney.org.nz

    20. By Don Collins on Mar 22, 2013 | Reply

      “Bill English is proposing a Cyprus-style solution for managing bank failure here in New Zealand,” said Norman, adding that the Reserve Bank is in the “final stages” of implementing an OBR system.

      New Zealand banks’ depositors will have their savings cut by a certain percentage needed to keep their bank afloat.

      Of course this is all non-sense, what Bill English is proposing is they’re going to steal your money to pay Privately owned Central Banks. What he should be expressing is they’re going to prosecute the Bankers much like Iceland did, that is lock them up. NZ still hasn’t sued international Banker criminals for rigging interest rates [Libor rates], which in effect is stealing from every New Zealander. Why hasn’t the Government shut down HSBC for nearly a Trillion dollars worth of money laundering when it’s illegal for ordinary New Zealanders to do the very same thing?

      What’s even more laughable is the fact that we even have a Reserve Banking system, that is; we borrow money with interest from these Private Central Banking cabal’s. In reality, New Zealanders shouldn’t have to pay interest when we can simply print our own money that costs us ZERO. Of course the Reserve system is a British Banking condition put upon all western nations to enslave the population via debt, and if you don’t play ball your simply erased from office or even killed. By the way, the actual City of London is a Private Corporation.

      Every New Zealander can stop Criminal Banks by pulling every cent out before the Government does or by forcing out idiot Government members. I don’t understand why New Zealanders aren’t more upset; perhaps go back to sleep by drinking chemical infested water laced with fluoride.

      Insurance on deposits is just a way for Bankers to gamble your money without fear of prosecution, period. Instead of Banking insurance, NZ needs strong laws for Bankers, that is; slip up and your going to Jail and by the way NZ’ers will be seizing your Bank. Of course in reality most NZ banks are owed by Australian banks, which makes protecting your money even more risky.

      Cyprus is just a stress test by the Banking Elite to see how the people react and a disturbing sign of things to come. John Key [ex Banker] will push through the Goldman Sachs & JP Morgan’s agenda [on behalf of Central Banks] of raping hard working peoples bank accounts it’s coming, be prepared.

    21. By Donald on Mar 22, 2013 | Reply

      no guarantee for Kiwi Saver funds either, so I guess the government would move first on these funds. If shove came to push.

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