Apr 05

CEO Of Italy’s Largest Bank Says Haircuts Of Uninsured Depositors “Acceptable”, Should Become A Template (ZeroHedge, April 4, 2013):

While the head of the ECB and his assorted kitchen sinks scramble to explain how Diesel-BOOM was horribly misunderstood when saying that depositor impairment may and will be the template for future European bank “resolution” (as should have been the case from Day 1), the CEO of Italy’s largest bank appears to have missed the memo. As Bloomberg reports, according to the chief executive Federico Ghizzoni, “uninsured deposits could be used in future bank failures provided global rulemakers agree on a common approach.” Or failing that, because if Cyprus taught us anything is that Europe will never have a common approach on anything, just use deposits as impairable liabilities, period, once the day of reckoning for Non-Performing Loans comes and these are forced to be remarked to reality, just as happened in Cyprus. One can only hope that uninsured deposits do not represent a substantial portion of the bank’s balance sheet because the CEO basically just told them they are next if when risk comes back to the Eurozone with a vengeance. Especially since as Mario Draghi was so helpful in pointing out, “there is no Plan B.

To wit:

Cutting large deposits in failing banks, along with other liabilities such as bonds, to offset losses is acceptable as long as small savers’ funds remain protected, Ghizzoni told reporters in Vienna late yesterday. The European Union has to introduce identical rules in all of its member states and ideally those rules would be coordinated globally, he said.

In fact, to the Italian, deposit impairment is perfectly ok as long as “everyone does it” – in other words, if it does become the template the Dutch finance minister already said it is, then all is well.

Including deposits “is acceptable if it becomes a European solution,” said Ghizzoni, 57. “What we cannot accept is differentiation country by country inside the same area. I would strongly suggest to make this decision not only within Europe but within the Basel Committee, where all countries are represented. Otherwise we would open the market for arbitrage.”

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