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New law proposed to shift bank failure risk from taxpayers

March 23, 2016

New law proposed to shift bank failure risk from taxpayers

Ottawa proposes ‘bail-in’ regime to force creditors to prop up failing banks

The Liberal government says it will create legislation that shifts some of the risk in a bank failure to creditors. (Canadian Press)

The Liberal government says it will create legislation that shifts some of the risk in a bank failure to creditors. (Canadian Press)

Canada will introduce legislation to implement a “bail-in” regime for systemically important banks that would shift some of the responsibility for propping up failing institutions to creditors.

The proposed plan outlined in the federal budget released on Tuesday would allow authorities to convert eligible long-term debt of a failing lender into common shares in order to recapitalize the bank, allowing it to remain operating.

The plan is in line with international efforts to address the potential risks to the financial system from institutions that are deemed too big to fail, the budget document said.

The issue was at the heart of the 2008 global credit crisis, with various governments having to bail out systemically important institutions.

Canada, which escaped the crisis relatively unscathed, did not have to rescue any of its banks though they got billions in support during the crisis and the recession that followed. The government said it will introduce framework legislation for the plan, along with enhancements to Canada’s bank resolution toolkit.

When the Harper government floated the idea of a bail-in regime in 2014, Moody’s cut its ratings on Canadian banks.

Where Do I Store My Wealth?

August 17, 2015

 

Where Do I Store My Wealth?

International diversification of wealth (no matter how large or small) can save your economic freedom. Although most of our readers thoroughly understand this concept, one of the most oft-heard concerns is that, by offshoring assets, one may not be able to get to them as easily as they now can. Here’s the response to that, and some practical advice on what you can do to protect yourself.

Let’s say you presently regard yourself as being economically diversified. You own stocks and bonds, you have some cash, you have a retirement fund and you have a bit of gold stuffed away at home. On the surface, it would seem that you’re covered.

Trouble is, you have all your wealth in one jurisdiction, and should that jurisdiction find itself in an economic crisis, all that “diversification” will be seriously at risk.

Of course, it’s human nature for us to want to keep our wealth close at hand. Itfeels more secure than having it miles away from us. We tend to follow this concept even though we’re well aware that to have our wealth really close (i.e., on our person) we would be asking to have someone with a gun take it away.

Although we understand this, we somehow manage to convince ourselves that our own government, should they decide that they wish to get their hands on our wealth, is less of a threat to us than some thief. If we’re being really truthful with ourselves, governments pose a greater threat than the average thief, as they can steal legally.

Confiscations and Bubbles

In recent years, the governments of the US (in 2010), Canada (in 2013) and the EU (in 2014) have passed bail-in legislation, allowing the confiscation of deposits in bank accounts. When confiscation does occur, I believe it will happen without warning, as it did in Cyprus. One day, you wake up and your money is gone. What can you do? Nothing. It’s legal.

 

 

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