Top Diaries

The US authorities have been able to channel somewhere between $40 bn and $50 bn of US tax payers' money to foreign counterparties of AIG, but that is unlikely to be the new status quo. They got away with it, thus far, because the foreign bail-outs by the US tax payer was hidden in obscure, indeed barely comprehensible financial transactions.

And because they represent less than five percent of the total ~~bailout~~ theft...

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Aug 19th, 2009 at 01:46:57 AM EST
[ Parent ]

Re: In this case (4.00 / 3)

BBC News: Q&A: Are my savings safe?

If you have an account with a UK bank, building society or credit union then your deposits are covered up to £50,000.
Banks from outside Europe are required to set up a UK subsidiary if they wish to operate in the UK and those subsidiaries have to be members of the FSCS, so your deposits there would also be covered.
A more complicated situation arises if you have an account with a bank from somewhere in the European Economic Area (EU members plus Iceland, Norway and Liechtenstein) in which case your bank may be covered by their home scheme.

Icesave apparently didn't have a UK subsidiary, though Kaupthing did. I don't know whether this situation is due to EEA rules (I would expect so) or due to English banking rules.

The 'poor little Icelander' frame is ridiculous given that Iceland was just recently praised to high heavens for being one of the richest western countries, and the people who made their money running these scams are still sitting on it. The British and Dutch should ask for a share of expropriations from the Joly investigation...

by nanne (zwaerdenmaecker@gmail.com) on Mon Aug 17th, 2009 at 07:07:08 AM EST
[ Parent ]

The wikipedia article on the Icesave dispute (which seems not to have been updated since end of 08) has more on the legal details. To my mind, the legal case was overwhelmingly on the side of the English and Dutch.

by nanne (zwaerdenmaecker@gmail.com) on Mon Aug 17th, 2009 at 08:24:13 AM EST
[ Parent ]

Re: In this case (4.00 / 4)

I still see no reason to saddle the Icelandic taxpayers for liabilities incurred by Icelandic citizens (or rather, corporations) in actions where the UK and Dutch regulators don't seem to have done their work properly or diligently.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Tue Aug 18th, 2009 at 05:38:23 AM EST
[ Parent ]

But they did, this is due to rules pertaining to the European Economic Area. Whose fault those rules are is a different question - and I can understand that it is hard to feel sympathy for the Brits who are simultaneously working against meaningful forms of regulation on banks and hedge funds.

The fact that Icelandic citizens have to pay up has to do with the actions of the previous Icelandic government, which decided to nationalise the banks and apply for an IMF credit rather than letting the banks and the country simply go bankrupt and wipe out the savings of Icelanders and foreigners alike.

The main principle here is discrimination. The Icelandic government saw fit to protect savers in Iceland itself but not foreign savers. This is not something you can do in an 'economic area' where your companies can operate abroad without subjecting themselves to the protection regimes abroad.

The British and Dutch are already letting Iceland off the hook for pragmatic purposes, they would be in a good legal position to ask for than what they are getting.

by nanne (zwaerdenmaecker@gmail.com) on Tue Aug 18th, 2009 at 07:34:04 AM EST
[ Parent ]

Re: In this case (4.00 / 5)

nanne:

The fact that Icelandic citizens have to pay up has to do with the actions of the previous Icelandic government, which decided to nationalise the banks and apply for an IMF credit rather than letting the banks and the country simply go bankrupt and wipe out the savings of Icelanders and foreigners alike.

Trying to sort this out for myself, this statement confused me.

If Iceland had let the banks go bankrupt, would they not have had to pay for some savings anyway as deposit guarantees? And is deposit guarantees not exactly what the present conflict is about?

Another thing that confuses me is, what did the icelandic government do when they took over the banks? Did they
a) put the banks into receivership?
b) take over the stocks and continue running the operations?
c) transfer the debt of the banks to the government?

If a or b they could still let the banks default on their debts, and if they need to start a new bank for those icelandic savings and loans operations. If c they are criminally insane, like their US counterparts.

Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se

by A swedish kind of death on Tue Aug 18th, 2009 at 01:43:49 PM EST
[ Parent ]

You're right, it was muddled thinking. The banks were largely put into receivership, one bank was nationalised (see here). The banks were then restructed, and new ones split off by the government of Iceland.

by nanne (zwaerdenmaecker@gmail.com) on Tue Aug 18th, 2009 at 03:15:09 PM EST
[ Parent ]

If c they are criminally insane, like their US counterparts.

Or the Irish.

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma

by Migeru (migeru at eurotrib dot com) on Wed Aug 19th, 2009 at 01:34:02 AM EST
[ Parent ]

See also A Modern Icelandic Saga: Part One by ChrisCook where the infamous phone call between Darling and Mathiesen is transcribed in full...

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma

by Migeru (migeru at eurotrib dot com) on Tue Aug 18th, 2009 at 06:30:54 AM EST
[ Parent ]

Re: In this case (4.00 / 3)

I see no case where Icelandic taxpayers should have to pay anything.

The situation is entirely absurd: it was a deal between private Icelandic interests and private British interests. Since when does the debt of an individual to a foreigner automatically fall into the hands of the state if the individual can't pay?

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Tue Aug 18th, 2009 at 04:32:14 AM EST
[ Parent ]

Banks are special. It's about time we stopped pretending they are not so. But this also means that banks and individuals cannot be free to enter into just any old agreement.

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma

by Migeru (migeru at eurotrib dot com) on Tue Aug 18th, 2009 at 05:38:28 AM EST
[ Parent ]

You make the case (4.00 / 2)

for the UK government bearing the losses of UK savers (which I tend to agree with, to a decent extent) - but not of the Iceland government bearing these losses.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Tue Aug 18th, 2009 at 05:41:27 AM EST
[ Parent ]

At which point did the Icelandic government assume all the liabilities of the Icelandic banks?

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma

by Migeru (migeru at eurotrib dot com) on Tue Aug 18th, 2009 at 05:45:39 AM EST
[ Parent ]

Icesave dispute - Wikipedia, the free encyclopedia

The situation is complicated by the position of so-called "wholesale" depositors. In the United Kingdom, 123 local authorities and other public bodies had a total of £920 million (€1.1bn) deposited with Icelandic banks.^[68] Even the Audit Commission, the independent body responsible for overseeing local government finances, admitted having £10 million deposited with Landsbanki and its subsidiary Heritable Bank.^[69] In the Netherlands, 22 local authorities had a total of €220 million deposited in Icelandic banks,^[70] with the province of North Holland being the most exposed.
The complication is that both the UK and the Netherlands exclude local authorities and larger private corporations from their deposit insurance schemes, as is possible (but not obligatory) under Directive 94/19/EC, on the grounds that larger organizations should have more capacity to judge (and absorb) risk than the general public. Iceland makes a much more sparing use of this provision, so its definition of a guaranteed deposit is wider:
"Deposit" [...] refers to any credit balance resulting from financial deposits or transfers in normal banking transactions, which a commercial bank or savings bank is under obligation to refund under existing legal or contractual terms. However, this guarantee does not extend to bonds, bills of exchange, or other claims issued by a commercial bank or savings bank in the form of securities.
Deposits, securities and cash owned by Member Companies, their parent and subsidiary companies for their own account, and deposits, securities and cash connected with convictions of money-laundering, are not covered by the guarantee [...]
- Paras. 3 and 6 of Article 9, Act No 98/1999
This means that Icelandic local authorities and corporations had their deposits (not including bonds) guaranteed at 100% by the Icelandic government, while British and Dutch organisations in the same situation had no cover whatsoever. The Dutch government was forced to use a royal decree to prevent North Holland from attempting to seize Landsbanki assets through the courts outside the Netherlands: speaking on 7 November, Minister of the Interior and Kingdom Relations Guusje ter Horst said "Their behaviour is hindering the difficult and complex discussions with the Icelandic government."^[71]

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma

by Migeru (migeru at eurotrib dot com) on Tue Aug 18th, 2009 at 06:33:15 AM EST
[ Parent ]

Imagine that, say, Credit Agricole went down, and the French government decided only to pay out deposit insurance on savings of customers of French branches, but not of branches CA had in other EU countries, for which CA did not have to pay into their deposit insurance schemes because they were just branches, not subsidiaries. Now add that there are EU laws that specifically state that any such discrimination is forbidden and that there is a minimum amount the French deposit insurance has to pay out to its foreign customers in the EU.

We might start wondering what this single market in the EU is actually about.

by nanne (zwaerdenmaecker@gmail.com) on Tue Aug 18th, 2009 at 07:53:36 AM EST
[ Parent ]

Re: You make the case (4.00 / 2)

They certainly shouldn't let banks operate in their countries, no matter if they were branches or subsidiaries, if they won't take part in the local depository insurance system. No way Jose.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Tue Aug 18th, 2009 at 08:05:36 AM EST
[ Parent ]

Re: You make the case (4.00 / 2)

Well, that's the way things are (for branches) under the single market, and that includes the European Economic Area. I don't see any major problem with it other than the general insufficiency of banking regulation on the European level -- deposit insurance taken alone seems to be arranged well enough.

General regulation of finance is where the British government is a problem. Maybe the Dutch government too, although I don't really think so at the moment. So on a karmic or moral level I don't know about the British beef with Iceland. Legally, though, they are fully in their right to insist on equal deposit protection for their citizens.

by nanne (zwaerdenmaecker@gmail.com) on Tue Aug 18th, 2009 at 08:36:47 AM EST
[ Parent ]

Re: You make the case (none / 0)

I don't see what nationality has got to with it, as long as Icelanders using the Dutch or British subsidiaries/branches haven't been compensated differently than non-Icelanders using those very same branches... or if non-Icelanders using the Icelandic banks on Iceland were treated differently than the locals were.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Tue Aug 18th, 2009 at 08:45:21 AM EST
[ Parent ]

The Icelandic government Argues that they are not discriminating on the basis of nationality but they are distinguishing branches based on location.

The question is, which regulator and deposit insurance scheme covers a branch located in a foreign country?

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma

by Migeru (migeru at eurotrib dot com) on Tue Aug 18th, 2009 at 08:53:47 AM EST
[ Parent ]

Re: You make the case (none / 0)

The FSA of the foreign country in which the branch is located?

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Tue Aug 18th, 2009 at 09:08:16 AM EST
[ Parent ]

Re: You make the case (none / 0)

The subsidiaries (e.g. of Kaupthing) take part in the deposit insurance scheme of the country they are in. The branches do not. The problem is precisely that the deposits in Dutch and British branches of Landesbanki were treated differently by the government of Iceland.

by nanne (zwaerdenmaecker@gmail.com) on Tue Aug 18th, 2009 at 08:54:55 AM EST
[ Parent ]

Re: You make the case (4.00 / 6)

I can tell you of another very specific case, which I had studied in great depth in 2006 when I became aware that TEOTWAWKI was coming for banks and I started chasing the best yield/safety for my own liquidities.

The case relates to ING. ING has a subsidiary called ING Direct, which markets no-thrills, low-fees, at some time high-yield (but not so much so today) online banking services. The brand is operated worldwide, but the legal framework is not everywhere the same.

In France, ING Direct is a branch of the Dutch ING Direct. It is not a french-incorporated subsidiary, and it is not registered as an "établissement de crédit" at the Banque de France. It is only registered as a branch of a foreign bank from the EC.

As such, ING Direct.fr was NOT (and still isn't) covered by the "Caisse de Garantie des Depots" scheme (of 7Ok€ per depositor and per bank at the time, Sarko talked of raising it to 100k€ but I don't think it's actually in place yet). The website of CGD makes it very clear that depositors in such situations would have to file cross-border claims with the deposit insurance of the home country (The Netherlands in this case). At the time, the Netherlands offered only 20k€ per depositor in insurance (this has subsequently been made an EC-mandated minimum, but it wasn't even in place in the UK during the NR run).

EC does not mandate equal treatment in insurance for branches and subsidiary, nor for local or foreign banks. What it does mandate is that depositors from any EC country in a given bank, should be given equal treatment by all regulators concerned by a failure of this bank. Enrolment in deposit insurance may or may not be mandatory for cross-border operations, it is a mess.

Pierre

by Pierre on Tue Aug 18th, 2009 at 10:58:53 AM EST
[ Parent ]

Thanks for the clarification (4.00 / 5)

From your information and that provided by Migeru, I see that there are two big zones of gray:

whether you are banking with a subsidiary or a branch of a foreign bank - I'd say this is not a distinction that is accessible to retail clients and they should not have to expect to be treated differently;
the fact that with branches, part of the deposit guarantee was provided by one State, and part by another. I must admit I'm not quite clear which amount was paid by whom in the Icesave saga, and which amount is claimed against another State (especially as some governments announced new guaranteed deposit ceilings right in the middle of the crisis).

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Tue Aug 18th, 2009 at 10:53:14 AM EST
[ Parent ]

Re: Thanks for the clarification (4.00 / 2)

Under the 'passport' system referenced by Migeru, Icesave paid into the deposit insurance of the UK and the Netherlands for the amount of deposits they insured above Iceland.

Thus, the UK and the Netherlands paid the amounts above € 20,887 to an amount equal to their domestic deposit insurance, but Icesave also paid insurance for those amounts.

In this particular case, then, the lack of clarity was not that harmful for depositors.

The question is whether something like the 'passport' system can be made mandatory by a national regulator, or if banks will just in general prefer it because having pointed out that your savings are insured to a lower amount than those of other banks is bad advertising.

by nanne (zwaerdenmaecker@gmail.com) on Tue Aug 18th, 2009 at 11:57:16 AM EST
[ Parent ]

Migeru:

Banks are special

aah, nice to see it written out so concisely.

reminds me of my old sig, 'lobbyists are people too'.

we mere mortals bow our heads at the new reality, counting ourselves fortunate to have representatives of such divinely mandated agents and entities deigning to sully their fine leather soles in our refuse-strewn streets.

good thing they hover 30 cm above the ground, but the smell must be terrible for their delicate olfactories.

what luck, they are gods amongst monkeys, special just begins to cover it.

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Tue Aug 18th, 2009 at 06:04:31 AM EST
[ Parent ]

melo:

Banks are special
aah, nice to see it written out so concisely.
reminds me of my old sig, 'lobbyists are people too'.

You misunderstand. They are special in a way that probably means they shouldn't be run for profit.

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma

by Migeru (migeru at eurotrib dot com) on Tue Aug 18th, 2009 at 06:08:52 AM EST
[ Parent ]

you're right, in that my perception of the word special did not so much refer to their exploitation of moral hazard issues, as yours did, but rather to the fact that their actions and flaunting of their impunity with the continued bonuses reveals how special (in a reverse sense) they feel themselves to be, hence the bitterness of my comment.

the two interpetations of 'special' are orthogonal, not mutually exclusive or contradictory in this case.

the money-men's victory in this duplicitous gaming of the regulation process, and corruption of the legislature, risks bring our whole system to its knees, as almost happened last october, when the biggest bandaids in the planet's history were assiduously used to cover up the necrosis.

what will this october bring, i wonder? is that the whetting of a giant scythe i hear yonder?

as we see the first world's coherence dissolve into mumbo jumbo gibberish, perhaps it's worth remembering that to the billions suffering poverty, this is a levelling of the playing field, not some vengeful god's revenge, as it might seem to the paranoid wing of our societies, (creating the need for the islamic scapegoat).

'The history of public debt is full of irony. It rarely follows our ideas of order and justice.' Thomas Piketty

by melo (melometa4(at)gmail.com) on Tue Aug 18th, 2009 at 09:29:19 AM EST
[ Parent ]

Banks are special and can't behave in any old way, yes. Which is why we have bankning regulation. Like Jerome said, if the Brit and Dutch authorities didn't think ICEsave was sound, they should never have let them operate in their respective countries. But they did. The fault is theirs, or if the savers indeed knew that they weren't covered and they felt the risk was worth it, it's their own fault. Jerome put it very succintly in his first comment in the thread.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Tue Aug 18th, 2009 at 08:04:00 AM EST
[ Parent ]

This single market thing seems to be difficult to understand. Or, I wonder what the legal possibilities for British and Dutch regulators would have been to forbid Icesave from operating in their territories or to force it to establish a local subsidiary. I suspect, none.

by nanne (zwaerdenmaecker@gmail.com) on Tue Aug 18th, 2009 at 08:39:47 AM EST
[ Parent ]

Is it against EU rules to demand that banks operating in the country takes part in the deposit insurance system used in the country? Parex bank (since nationalised) had a presence in Sweden and its local deposits were specifically guaranteed by the Swedish FSA, and I find it hard to believe they got that service for free.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Tue Aug 18th, 2009 at 08:46:09 AM EST
[ Parent ]

There is a difference between foreign subsidiaries and branches in foreign countries.

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma

by Migeru (migeru at eurotrib dot com) on Tue Aug 18th, 2009 at 08:51:20 AM EST
[ Parent ]

Is there any reason why this should be the case? It seems the rules are made to create loop-holes: don't like the local regulations? Just create a branch instead of a subsidiary and use the lax rules of London (or Cyprus, or...).

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Tue Aug 18th, 2009 at 09:10:24 AM EST
[ Parent ]

Indeed. This is why we need better financial regulation at the European level.

by nanne (zwaerdenmaecker@gmail.com) on Tue Aug 18th, 2009 at 09:28:04 AM EST
[ Parent ]

Icesave dispute - Wikipedia, the free encyclopedia

Isn't this sufficient?

The Directive imposes a minimum guarantee of €20,000 per depositor: moves to increase this minimum to €50,000 or even higher had been agreed politically before the Icelandic crisis, but had not been incorporated into EU law, much less into EEA law. The Tryggingarsjóður guarantees 1.7 million krónur on the basis of a fixed euro-króna exchange rate, equivalent to €20,887.^[61] The Netherlands and the UK have higher guarantee levels, €100,000 and £50,000 (approx. €60,000) respectively: Landsbanki was a member of the Dutch and British compensation schemes for the purposes of guaranteeing this difference in cover, an arrangement known in Britain as the "passport system",^[64] and commonly used by banks throughout the EEA. In addition, the UK Treasury has exceptionally guaranteed retail deposits in excess of £50,000 which were held in Icelandic-owned banks in the UK at the time of the crisis, at a cost of some £1.4 billion (€1.7bn).

Icesave depositors would have been covered up to €20,000 by the Icelandic deposit insurance, and had become a member of the Dutch and British compensation schemes for the remaining covered amounts. So, for Dutch deposits, the Dutch compensation scheme would have been liable for an additional €80,000 and the British compensation scheme for €40,000.

What am I missing?

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma

by Migeru (migeru at eurotrib dot com) on Tue Aug 18th, 2009 at 09:33:57 AM EST
[ Parent ]

As I stated upthread, I think the regulation with regard to deposit insurance is arranged well enough (especially if the amount is raised to € 50,000). The issue is general regulation of banks.

by nanne (zwaerdenmaecker@gmail.com) on Tue Aug 18th, 2009 at 09:45:36 AM EST
[ Parent ]

But the raise to €50,000 took place after the collapse of the Icelandic banks. What we're discussing is who is liable for how much in the Icesave case.

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma

by Migeru (migeru at eurotrib dot com) on Tue Aug 18th, 2009 at 09:54:28 AM EST
[ Parent ]

Yes, I don't disagree with you, I was talking more generally.

In the Icesave case the government of Iceland is liable for the € 20,887 for private deposits that it has settled for with the British and Dutch.

It could legally have been liable for more (the equal amount that it guaranteed for its own citizens and organisations), but since there is a settlement, that is no longer relevant.

by nanne (zwaerdenmaecker@gmail.com) on Tue Aug 18th, 2009 at 10:44:45 AM EST
[ Parent ]

Re: In this case (4.00 / 3)

As long as Iceland hasn't put people in prison for fraud over this (and confiscated their assets - all their assets; I want the assholes sleeping under bridges when they get out of prison, if they ever do), Iceland absolutely has to pay - they've not shown any inclination to prevent similar frauds and pyramid scams in the future.

As long as the UK hasn't put people in prison for fraud over this (and confiscated their assets - all their assets), the UK has no claim on Iceland's debt repayments - they have not shown any inclination to prevent similar frauds and pyramid scams in the future.

- Jake

Friends come and go. Enemies accumulate.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Wed Aug 19th, 2009 at 01:56:41 AM EST
[ Parent ]

Can you wrap this comment up in a diary? I'll front-page it.

En un viejo país ineficiente, algo así como España entre dos guerras civiles, poseer una casa y poca hacienda y memoria ninguna. -- Gil de Biedma

by Migeru (migeru at eurotrib dot com) on Wed Aug 19th, 2009 at 02:24:18 AM EST
[ Parent ]