SDR - New World Money

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>>> Bailout vs. bail-in



https://en.wikipedia.org/wiki/Bailout#Bailout_vs._bail-in



Basically, a bail-in forces the borrower's creditors to bear some of the burden by having part of the debt they are owed written off. (In the case of Cyprus, the creditors in question were bondholders, and depositors with more than €100,000 in their accounts.) ( Source : The Economist )

Theory[edit]

This bail-in tool was first brought to global attention in Cyprus, as discussed below, but had been discussed theoretically since at least 2010.[8] The resolution of globally significant banking institutions (GSIFIs) was a topic of a joint paper by the Federal Reserve and the Bank of England in 2012.[9]

The Financial Stability Board (FSB) published in October 2011 a guideline document entitled "Key Attributes of Effective Resolution Regimes for Financial Institutions" which deals with the current bailout regime.[10] The scope of this planned bail-in regime for participating countries is not just limited to large domestic banks. In addition to these "systemically significant or critical" financial institutions, the scope also applies to two further categories of institutions, a) Global SIFIs, in other words, cross-border banks which happen to be incorporated domestically in a country that is implementing the bail-in regime, and b) "Financial Market Infrastructures (FMIs)", such as clearing houses. The inclusion of FMIs in potential bail-ins is in itself a major departure. The FSB defines these market infrastructures to include multilateral securities and derivatives clearing and settlement systems, and a whole host of exchange and transaction systems, such as payment systems, central securities depositories, and trade depositories. This would mean that an unsecured creditor claim to, for example, a clearing house institution, or to a stock exchange, could in theory be affected if such an institution needed to be bailed-in. The inclusion of FMIs means that large parts of the global financial system is susceptible to bail-in and could potentially be bailed-in.

Outgoing Deputy Director of the Bank of England Paul Tucker chose to open his academic career at Harvard with an October 2013 address in Washington to the Institute of International Finance in which he suggested that U.S. banks and other institutions were now no longer to be deemed too big to fail and henceforward would be bailed-in.[11] The EU financial community symposium on the "Future of Banking in Europe" (December 2013) was attended by Irish Finance Minister Michael Noonan, who proposed a bail-in scheme in light of the banking union that was under discussion at the event.[12] Deputy BoE Director Jon Cunliffe suggested in a March 2014 speech at Chatham House that the domestic banks were too big to fail (TBTF), and instead of the nationalisation process used in the case of HBOS, RBS and threatened for Barclays (all in late 2008), could henceforth be bailed-in.[13]

Economist Graeme Archer noticed in March 2014 that no personal punishment (such as dismissal or incarceration) is required under the latest regulations, and that therefore corrective action is unlikely.[14]

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