Inevitable Crash

Amirani

The BRRD (Bank Recovery and Resolution Directive) is the applicable directive that has been implemented into law. Various countries have enacted slightly different pieces of legislation, but the main difference between these is the rankings of senior bondholders and whether or not bank holding companies are required in the jurisdiction in order to absorb losses.

Basically, the core tenets of the legislation are:
- Differentiation is now provided between senior bondholders and ordinary depositors. Previously these were ranked pari-passu in most countries (hence Ireland could not legally impose losses on holders of senior bank bonds without also hitting depositors). Now, deposits receive preference across jurisdictions versus most senior debt.
- Deposits are guaranteed up to €100k.
- Banks are required to hold additional levels of loss absorbing capital. Particularly CET1 capital, but also additional tier 1 and also tier 2 loss-absorbing capital. As mentioned previously, there's an additional tier of either holding company issuances or special sub-senior capital that will also absorb losses ahead of deposits.

BRRD really does strengthen deposit protection and makes banks in general much more stable. A criticism often is that this stability means that banks can't really act counter-cyclically and may not be able to provide liquidity to the wider economy in times of stress.

With reference to this discussion though; Johnjoe is talking complete nonsense. Depositors have far more protection now than before BRRD. Firstly the 100k explicit guarantee, and secondly, all the additional layers of loss-absorbing capital that will be burned before deposits. He made 1 semi-correct point in that derivatives will be protected ahead of deposits - but this is only in the case of derivatives contracts that have a valid credit support annex and ISDA. But this isn't new, and only applies to netted derivatives. Daily collateral rules mean that there won't be extremely large outstanding margins on these anyway.

s7ryf3925pivug

How do the following compare in terms of security:
Government bonds
Pension fund
Deposit account in a bank
Deposut account in a credit union

At my age (40 next year) it seems sensible to liquidise deposits to facilitate directing the maximum tax-free portion of my earnings into a pension fund (once mortgage is paid off). Avoid a huge amount of income tax that way. Any flaw in that plan?

s7ryf3925pivug

I was interested to realise that the predominant economic system has only been around for a few decades. Before that the state controlled aspects of the economy that are now left to banks and the market. For example interest rates and the issue of currency used to be state-controlled.

The control of large businesses has also changed. Instead of captains of industry you have stock market tycoons. One effect of this is that unprofitable parts of businesses are readily liquidated now. This has not been shown to improve productivity (as it was expected to) and has the effect of job losses and the destruction of means of production.

This means that the current economic system - where businesses and markets have most of the control - is relatively unproven. A massive crash seems more plausible when considered in that context - I have no real idea if one is looming, but I wouldn't dismiss the notion without trying to gain insight into the concerns.

NSAman

Louisa Purring Cuckoo wrote: »

How do the following compare in terms of security:
Government bonds
Pension fund
Deposit account in a bank
Deposut account in a credit union

At my age (40 next year) it seems sensible to liquidise deposits to facilitate directing the maximum tax-free portion of my earnings into a pension fund (once mortgage is paid off). Avoid a huge amount of income tax that way. Any flaw in that plan?

As I said pervious I am no economic expert, the one flaw in your plan from my perspective is the pension fund.

While we all want a nice return from pensions, and the tax advantages (lesser now) I am skeptical of them personally. Open to abuse and mismanagement and many dont perform well... but that is a personal belief.. I commend you for being so forward looking.

Jim2007

JonDoe wrote: »

How about I just never show up at one of your Dinner parties, I'm sure there' scintillating affairs full of sage commentary (35+ years). your location status says Switzerland. Are you in the Cuckoo Clock Business?
I've really inspired a few here to come out of the shadows ans spew vitriol on my views. It's only reinforced my convictions, in fact I think I'll go and buy some hmmm. Silver today it is, yes silver it's more substantial and undervalued.
https://www.youtube.com/watch?v=TGwZVGKG30s

https://www.youtube.com/watch?v=9gPV9Tu0D-E

Like I said unable to answer the questions asked.

Cute Hoor

NSAman wrote: »

and the tax advantages (lesser now)

Why are the tax advantages lesser now - income tax relief is still available at the higher rate of income tax (currently 40%).

NSAman wrote: »

Open to abuse and mismanagement and many dont perform well.

Of course everything is open to abuse and mismanagement, but all (I presume?) pension funds are managed by professional fund managers whose job it is to get a reasonable return on the funds that your pension is invested in. If they don't deliver then their fund and career are both at risk. I might like to think I'd be better than any of these fund managers, but of course nothing could be further from the truth, I have neither the expertise nor time to compete with these guys. Will funds perform poorly from time to time, of course they will, funds are reflective of the way that particular asset class is performing at any given time.

Many don't perform well - at particular points. Pension funds took a hammering in the recession, losing something like 30% of their value, but they weren't unique, many had their wealth more than wiped out.

Investing in a pension from an early age, availing of the tax advantage, hoping that your fund manager (could be yourself) will average a reasonable annual return (some will be bumper years, some negative), is an absolute no-brainer in my opinion.

The following is an actual example of how a pension pot has performed.
€100k (nett) invested between 2003 and 2010 (some good and some bad years in that period.
Pension payout to date €94,851
Current pension pot €231,663 (after one of the worst performing years for many asset classes, particularly stocks)

I would hope though that somebody wouldn't be basing pension decisions on casual generalised comments (from me or anybody else) on an internet forum.

s7ryf3925pivug

Cute Hoor wrote: »

Why are the tax advantages lesser now - income tax relief is still available at the higher rate of income tax (currently 40%).




Of course everything is open to abuse and mismanagement, but all (I presume?) pension funds are managed by professional fund managers whose job it is to get a reasonable return on the funds that your pension is invested in. If they don't deliver then their fund and career are both at risk. I might like to think I'd be better than any of these fund managers, but of course nothing could be further from the truth, I have neither the expertise nor time to compete with these guys. Will funds perform poorly from time to time, of course they will, funds are reflective of the way that particular asset class is performing at any given time.

Many don't perform well - at particular points. Pension funds took a hammering in the recession, losing something like 30% of their value, but they weren't unique, many had their wealth more than wiped out.

Investing in a pension from an early age, availing of the tax advantage, hoping that your fund manager (could be yourself) will average a reasonable annual return (some will be bumper years, some negative), is an absolute no-brainer in my opinion.

The following is an actual example of how a pension pot has performed.
€100k (nett) invested between 2003 and 2010 (some good and some bad years in that period.
Pension payout to date €94,851
Current pension pot €231,663 (after one of the worst performing years for many asset classes, particularly stocks)

I would hope though that somebody wouldn't be basing pension decisions on casual generalised comments (from me or anybody else) on an internet forum.

More a sanity check than a basis. Been planning it for a while. "Inevitable crash" made me ask the question.

I remember reading about the pending burst of the property bubble on this site and deciding not to buy a house at the time, after researching... So there can be some good info here.

NSAman

Cute Hoor wrote: »

I would hope though that somebody wouldn't be basing pension decisions on casual generalised comments (from me or anybody else) on an internet forum.

Absolutely not....anyone would want to be an idiot to take such advice.

I am talking about me personally as outlined in my post. Nothing is without risk, it is after all the future we are talking about. Pensions for me are a small amount of my future planning, of course I could be wrong. I am no financial genius. I personally, do not trust pension funds. I have a diversity of income for retirement. Pension, property, business and other assets.

Planning early in life is essential (if you can afford it) even small investments can grow.

soirish

ArnieSilvia wrote: »

My biggest worry is that I have cash in the banks that I don't trust at all (BOI) and unfortunately Santander bought the bank I had my account in in Poland.
I think that the only thing I could do is to spread the risk, maybe keep money in a basket of different currencies as well.
So yeah, it is too scary to invest anywhere but to keep cash in banks is even more scary.

I'd suggest to keep some euros in a German bank account.

Andycap8

Lots of references to the depositor guarantee scheme.

Sounds great but when you think about it how does it work. There's no secret fund somewhere with cash sitting to pay back depositors if Banks go bump in the night. So where's the money to come from if it does exist currently?
So who's the backstop. It's administered by the Central Bank of Ireland but they're an ECB entity. They collect a levy from each of the banks but they aren't actually liable for the final bill.

- that levy is tiny
- there was €98bn in Irish deposits covered at Y/E 2017
- the target balance for the fund is 0.8% (80bps) of total covered deposits by 2024 (so less than €1bn by 2024 versus €98bn in deposits)
- If the Central Bank has to refund deposits in excess of the current fund balance then the Exchequer has to fund it.

So, do you honestly think the Irish state could bail out the depositors in the Irish banks within 2 weeks? Nope.

And the issue is timing. The scheme works to refund depositors within a few weeks, then complete an ordinary wind-down of the institution. Could the Irish govt raise 10's of billions in short notice? At a time when one or more of its major banks are going bust? I doubt it.

alwald

Does the the BRRD (Bank Recovery and Resolution Directive) cover all type of deposit accounts (current, savings with instant withdrawals, savings with a notice prior to withdrawals...)? and are pensions safe as well?

kala85

What do you see wrong with boi that you think it will collapse? Or any other bank in the Irish market.