What happens when you can’t trust your bank deposits are safe? Did the European Central Bank destroy trust in Cyprus? (see my prior post) The European Central Bank clowns and EU politicians are now backpedaling, but once the trust cat is out of the bag, it can’t be put back in. Bank deposit haircuts of 6.75% and 9.9% in Cyprus bank deposits would be reduced by “according to the WSJ, … under 5% for deposits under €100K, under 10% for deposits between €100 and €500K, and over 13% for deposits greater than half a million.”
Would you or a rational person leave his deposits in a bank which reduced their value once and promised not to do it again? The ECB has lost trust that the ECB would protect deposits in insured banks under its control. Without trust, a bank is a threat, not a safe place for your cash.
Curiously, the FDIC lowered its backing of publicly owned bank deposits. For your city, town, village, school district, other taxing district: The US FDIC has revised its rules and isn’t insuring public entity deposits exceeding $250,000.00 in all accounts aggregated together. The FDIC insures your bank deposits, but it is very under-capitalized. The FDIC “is mandated by law to keep a balance equivalent to 1.15% of insured deposits. As of September 30, 2012, total deposits at FDIC-insured institutions totaled roughly $10.54 trillion, although not all deposits are insured.” The FDIC “in addition to the $18 billion in the DIF as of June, 2010; the FDIC has $19 billion of cash and U.S. Treasury securities held as of June, 2010 and has the ability to borrow up to $500 billion from the Treasury.” Or, the FDIC has 0.2% total deposited cash available to cover bank losses, without borrowing from the Treasury or 5% available to cover losses, if it fully borrows from the Treasury.
Now connecting the dots from Europe with Cyprus to the FDIC in the USA: Cyprus banks were capitalized at only a 5% level and that was insufficient to fund withdrawals and the ECB was forced to transfer funds to cover withdrawals in Cyprus, hence the crisis for Cyprus and the rescinding of deposit insurance by the ECB. Has the FDIC rescinded its insurance over $250,000.00 to public entities because it expects that it will be limited by its available assets equivalent to 5% of deposited funds in a future run on US banks? Has the FDIC has “wisely” restricted its liability to public entities, such as cities, towns, villages, school districts, etc?
Will the Euro contagion spread to the the US? Will the EU governments and banks be trusted further? What happens if your city’s, town’s, school district’s accounts receive a haircut to $250,000.00? Would the FDIC, then, also restrict your personal bank withdrawals below a certain amount? Can your US bank deposits, the FDIC or US government be trusted?
Trust in the ECB? Trust in Merkel? Trust in Barack? Trust in Bernanke? Trust in your MSM? Or, do not trust, protect?