Yeah, unbelievable! How dare they impose losses on the people who actually took risk and invested in these banks! Outrageous!
There's not a country in the whole wide world where ALL depositors, regardless of the amounts, are fully protected by an (ultimately) taxpayer-funded deposit guarantee scheme. A depositor whose deposit in a given bank exceeds the guaranteed threshold is just a senior creditor and there's nothing wrong with haircutting them. The government should not be in the business of backstopping the whole country's savings. There should be some amounts that are guaranteed to prevent runs and the like, but this guarantee should never be a blanket one.
Quote from Lojanica:
I agree with most of what you say. It has to do with the seniority of the debt instrument I suppose. Checking and savings deposits need to be protected as much as possible otherwise all trust in the financial system will collapse. It is a faith based system. If banks are no longer trusted the entire world's economy will be destabilized. Rule of law is most important in the smooth functioning of markets. I suppose at least a clear system will help that aspect of things but the rules need to be CLEAR and not arbitrary therefore prudent individuals can conduct their affairs in a a manner which minimizes their risk.
People do not deposit their savings in a bank for risk. It is a risk off move. I understand your level of sophistication and yes for high net worth individuals they will be able to sufficiently hedge the risk but mom and pop? I am not so sure.
Tongue and cheek with regard to number of banks. If their are only one or two banks and they are subject to bail-ins for depositors then "everybody" gets nailed.
Anyways food for thought and thanks for your insightful comments.
Quote from Ghost of Cutten:
Socialism would be making taxpayers fund the costs of bank failure. Putting the cost of failure onto people who freely place funds with the business, in hope of a profit, would be capitalist.
Without any risk of loss of deposits, there is no incentive to be careful where funds are deposited. This would allow reckless banks to accumulate deposits by taking more risk, yield hogging, and offering higher interest rates (as happened with deposits into Iceland banks at several hundred basis points above LIBOR). As with any attempt to eliminate risk, the perverse result is that risk *increases* because people stop being careful due to the alleged 'guarantee'. Careful banks would lose funds because people would see no incentive to place deposits with careful banks - as the government is backstopping the riskier banks.
Were you actually alive in 2008?