Have any EU countries simply allowed rotten banks to fail and refused to bail out...

hatrickpatrick

...gambling investors?
If so, what was the result?

Or are we in fact alone in having to pay for private f*ck ups with public money?

ressem

Denmark have allowed 11 banks to fail so far. And they removed the blanket guarantee last year.
They do have about a hundred or so banks left though serving about 5 million people.

The cost is that depositors with over about 100K and senior bondholders are taking a hit of about 41% on the latest bank (Amagerbanken ) put into administration.

And there is still money going from the state to the bank, about €2.2 billion worth of which only a small part is meant to be repaid out of a deposit protection scheme funded by the remaining banks.

hatrickpatrick

Would it be possible to cover deposits but not stocks, debts, and bonds?
I simply can't abide this situation whereby people who invest in any other company than a bank lose their money, but loaning money to banks is completely safe because the government will refund you at the taxpayer's expense if things get ugly. It's absolutely repulsive.

ressem

hatrickpatrick wrote: »

Would it be possible to cover deposits but not stocks, debts, and bonds?

Stocks aren't covered. Stockholders in banks have who may have been saving for decades have been wiped out. Especially those who were approaching retirement age and would have been moved out of the riskier stock market.
Quinn and the "contracts for difference" gamblers are a special case that might need legislation to ban.

Secured debt and bonds that are on the same level as deposits, article 15 of the constitution has been interpreted by the supreme court to protect property from retro-active legislation. So while it's possible to lower the status of future loans, attempting to downgrade the current ones would likely fail in court.

hatrickpatrick wrote: »

this situation whereby people who invest in any other company than a bank lose their money, but loaning money to banks is completely safe because the government will refund you at the taxpayer's expense if things get ugly.

Hypothetically, if we were going then to limit the Irish banks to lending the amount of money as that held as deposits, then people in Ireland might find themselves only able to rent as they are outbid for the purchase price by those able to borrow from external banks.

Or if we effectively stop all future secured loans then the cost of borrowing will be more expensive and might be less stable, borrowed on shorter terms. So mortgages costs should go up, and trackers banned.

I'd choose this one, being an uninformed populist numpty that I am.

So question is would investors forsake the bank bonds and buy secure bonds with multinational corporations whose assets exceed liabilities, and to what degree would this cut down on the money that the banks lend to the small business, farmer etc for essential expansion or tools which are always a shade risky loans.

murphaph

ressem wrote: »

So question is would investors forsake the bank bonds and buy secure bonds with multinational corporations whose assets exceed liabilities, and to what degree would this cut down on the money that the banks lend to the small business, farmer etc for essential expansion or tools which are always a shade risky loans.

Personally I feel a better use of the taxpayers' (borrowed) billions would be to provide these risky loans to entrepreneurs in the hope of them starting export businesses, rather than pouring it into zombie banks.

Sponge Bob

Denmark is not in the Eurozone and have therefore been allowed to be sensible about rotten banks that are not worth saving. They also have rather a lot of banks per capita.

SBWife

Sponge Bob wrote: »

Denmark is not in the Eurozone and have therefore been allowed to be sensible about rotten banks that are not worth saving. They also have rather a lot of banks per capita.

I thought the issue was one of Irish law which classifies bond holders and depositors as the same class of creditor and required that if you treat one in a certain way (aka guarantee the deposits) you must treat the remainder in the same way.

What gets my goat is that when the bank debt was issued it was issued at a premium yield to an equivalent maturity Irish government debt. Thus the investors where being paid to take some risk above and beyond that of the Irish state when the worst case scenario came into play they were protected from the risk that they had already been paid for by the Irish government.

Coyler

Sponge Bob wrote: »

Denmark is not in the Eurozone and have therefore been allowed to be sensible about rotten banks that are not worth saving. They also have rather a lot of banks per capita.

Dutch bank DSB was bankrupt since 2009. Nothing to do with the eurozone but it's nice to blame other entities that accept we made a horlicks of it ourselves.

Bob Z

ressem wrote: »

Denmark have allowed 11 banks to fail so far. And they removed the blanket guarantee last year.
They do have about a hundred or so banks left though serving about 5 million people.

did that work out for them?

Scofflaw

Bob Z wrote: »

did that work out for them?

Pretty much, because they have, as someone already said, a lot of banks, which means none of the failed banks has been all that large. Amagerbanken, the biggest failure, was about $2.8bn, or a little under €2bn. That's smaller by a good bit than any of ours bar EBS.

The other thing the Danes have - and had in place at the beginning of the crisis - is a bank failure resolution mechanism, something we still lack as far as I'm aware.

cordially,
Scofflaw

Bob Z

Scofflaw wrote: »

Pretty much, because they have, as someone already said, a lot of banks, which means none of the failed banks has been all that large. Amagerbanken, the biggest failure, was about $2.8bn, or a little under €2bn. That's smaller by a good bit than any of ours bar EBS.

The other thing the Danes have - and had in place at the beginning of the crisis - is a bank failure resolution mechanism, something we still lack as far as I'm aware.

cordially,
Scofflaw

So it would worked here?

Scofflaw

Bob Z wrote: »

So it would worked here?

Would it have worked here? That's hard to answer, I think. Most of our banks were (still are) much bigger in proportion to our economy than Denmark's. However, a properly designed resolution mechanism might have allowed us to collapse some of them in a controlled way - something I think should have happened with Anglo.

cordially,
Scofflaw