We all remember what happened when major banks were “bailed out” during the last financial crisis.  A tremendous amount of taxpayer money was given to the big banks to help prop them up so they wouldn’t fail.  This greatly upset a lot of people.

Well, when the next great financial crisis hits Europe, banks are not going to get “bailed out” this time.  Instead, we are going to see “bail-ins”.

So precisely what is a “bail-in”?  Essentially, what happens is that wealth is transferred from the “stakeholders” in the bank to the bank itself in order to keep it solvent.  That means that creditors and shareholders could potentially lose everything if a major bank in Europe fails.  And if their “contributions” are not enough to save the bank, those holding private bank accounts will have to take “haircuts” just like we saw in Cyprus.  In fact, the travesty that we witnessed in Cyprus is being used as a “template” for much of the new legislation that is being enacted all over Europe.

The bottom line is that not a single bank account in the European Union will ever be truly safe again.

By this time, everyone in the EU was already supposed to have enacted “bail-in” legislation, but some countries in Europe have been dragging their feet.  So now the European Commission (the executive body of the European Union) is giving them a hard deadline.  According to Reuters, any nation that has not passed “bail-in” legislation within two months will be subject to legal action…

The European Commission on Thursday gave France, Italy and nine other EU countries two months to adopt new EU rules on propping up failed banks or face legal action.

The rules, known as the bank recovery and resolution directive (BRRD), seek to shield taxpayers from having to bail out troubled lenders, forcing creditors and shareholders to contribute to the rescue in a process known as “bail-in”.

So which countries are being threatened?

It turns out that there are 11 of them.  The following comes from Mark O’Byrne…

The article “EU regulators tell 11 countries to adopt bank bail-in rules” reported how 11 countries are under pressure from the EC and had yet “to fall in line”. The countries were Bulgaria, the Czech Republic, Lithuania, Malta, Poland, Romania, Sweden, Luxembourg, the Netherlands, France and Italy.

France and Italy are two countries who are regarded as having particularly fragile banking systems.

But why only two months to get this done?

When I was in law school, I took an entire course on European Union law.  Normally, things in Europe take a very long time to get done.  It is out of character for the European Commission to rush to get something like this done so quickly.

Could they be anticipating that this legislation will need to be put into use very soon?

What we do know is that bonds in Europe have already been crashing, and it appears that the European Central Bank is starting to lose control over European financial markets.

And we also know that there has been a sustained bank run in Greece.  In fact, it is being reported that 700 million euros were pulled out of Greek banks on Friday alone.  Personally, I think that anyone that still has any money in Greek banks is absolutely insane.  Some day in the not too distant future, Greek bank account holders are going to be in for a “haircut” just like we saw in Cyprus.  The following comes from Zero Hedge…

While the Greek government believes it may have won the battle, if not the war with Europe, the reality is that every additional day in which Athens does not have a funding backstop, be it the ECB (or the BRIC bank), is a day which brings the local banking system to total collapse.

As a reminder, Greek banks already depends on the ECB for some €80.7 billion in Emergency Liquidity Assistance which was about 60% of total deposits in the Greek financial system as of April 30. In other words, they are woefully insolvent and only the day to day generosity of the ECB prevents a roughly 40% forced “bail in” deposit haircut a la Cyprus.

But of course Greece will only be just the beginning.  In the end, I expect major banks to fail all over Europe as we head into the greatest financial crisis that Europe has ever seen.  Bank account holders all over the continent could end up having to take “haircuts”, and that would just make the coming deflationary cycle in Europe a lot worse.

And I actually expect events in Europe to start accelerating greatly by the end of this calendar year.  Apparently the top dogs in the European Union are also concerned about the immediate future, because they are rushing to get “bail-in” legislation passed in every nation in the EU by the end of the summer.

Fortunately, the United States has not moved in a similar direction – at least not yet.  It is always possible that during an “emergency situation” anything can happen.  We saw that in Cyprus.  But for the moment, European bank accounts appear to be more vulnerable than U.S. bank accounts.

Not that any of us should have much confidence in the major banks in the United States either.  Since the end of the last financial crisis they have become more reckless than ever.  At this point, the six largest banks in this country collectively have 278 trillion dollars of exposure to derivatives.  A day is coming when the “too big to fail” banks will actually start failing, and that will absolutely cripple our economy.

We are moving into a time of great financial instability.  During such a time, one of the keys will be to not have all of your eggs in one basket.  That way it will be more difficult for your wealth to be wiped out by a single event.

So what other advice would you give to people that are wondering how to deal with the coming global banking crisis?  Please feel free to add to the discussion by posting a comment below…

The post Why Is The EU Forcing European Nations To Adopt ‘Bail-In’ Legislation By The End Of The Summer? appeared first on The Economic Collapse.

Amazingly, this announcement received very little notice in the international media.  The fact that bank account confiscation will now be a permanent part of the plan to bail out troubled banks in Europe should have made headline news all over the globe.  The following is how CNN described the plan…

European Union finance ministers approved a plan Thursday for dealing with future bank bailouts, forcing bondholders and shareholders to take the hit for bank rescues ahead of taxpayers.

The new framework requires bondholders, shareholders and large depositors with over 100,000 euros to be first to suffer losses when banks fail. Depositors with less than 100,000 euros will be protected. Taxpayer funds would be used only as a last resort.

According to this new plan, bondholders will be the first to be required to “contribute” when a bank bailout is necessary.

Do you want to guess what that is going to do to the price of European bank bonds?

Shareholders of the bank will be the next in line to get hit when a bank bailout happens.

After that, they will go after those that have more than 100,000 euros in their bank accounts.

EU officials say that such a plan is needed because bailing out banks with taxpayer money was creating too many problems…

The European Union spent the equivalent of a third of its economic output on saving its banks between 2008 and 2011, using taxpayer cash but struggling to contain the crisis and – in the case of Ireland – almost bankrupting the country.

But a bailout of Cyprus in March that forced losses on depositors marked a harsher approach that can now, following Thursday’s agreement, be replicated elsewhere.

Oh wonderful – the “Cyprus solution” can now be “replicated” everywhere in Europe.

This plan will now be submitted to the European Parliament for final approval.  The goal is to have this plan finalized by the end of this year.

If you have a bank account in Europe with over 100,000 euros in it, get your money out now.

I am not sure how else to say it.

In Cyprus, there were retirees and small businesses that lost hundreds of thousands of euros overnight.

Do not let that happen to you.

And without a doubt, we are going to see a lot of banks fail in Europe over the next few years.  This will especially be true once the next great financial crisis strikes.

But even though we haven’t even gotten to the next great financial crisis yet, the economic depression in Europe just continues to get even worse.  Just consider these facts…

-Car sales in Europe have hit a 20 year low.

-Overall, the unemployment rate in the eurozone is sitting at 12.2 percent.  That is a brand new all-time record high.

-An average of 134 retail outlets are shutting down in Italy every single day.  Overall, 224,000 retail establishments have closed down in Italy since 2008.

-It is being projected that Italy will need to ask for an EU bailout within 6 months.

-Consumer confidence in France has dropped to an all-time low.

-The unemployment rate in France is up to 10.4 percent.  That is the highest that it has been in 15 years.

-Government is now responsible for 57 percent of all economic output in France.

-In May, household lending in Europe declined at the fastest pace in 11 months.

-During the first quarter, disposable income in the UK declined at the fastest pace in 25 years.

-It is being projected that the unemployment rate in Spain will hit 28.5 percent next year.

-Just a few years ago, the percentage of bad loans in Spain was under 2 percent.  Now it is sitting at 10.87 percent.

-The national debt in Spain has grown by 19.1 percent over the past 12 months alone.

-The Greek government says that the Greek economy will shrink by 4.5 percent this year.

-It is being projected that the unemployment rate in Greece will rise to 30 percent in 2014.

And it certainly does not help that China has essentially declared a trade war on Europe.  That is not going to help struggling European industries at all.

I hope that more Americans will start paying attention to what is happening in Europe.  The crippling economic problems that are sweeping across that continent will come here too.

And at some point there is a very good chance that we will also see Cyprus-style bank account confiscation in this country.

So don’t put all of your eggs in one basket.  It is good to have your assets spread around a bunch of different places.  That makes it much harder for them to be wiped out all at once.

What we are watching in Europe right now is really unprecedented in modern times.  They are declaring open season on large bank deposits.  In the end, a lot of people in Europe are going to lose a lot of money.

Make sure that you are not one of them.

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