People living in Europe will rejoice at the news of hearing how the trillion euro financial help packages from banks are no longer a possibility from now on. Citizens had been paying the bill for horrible banking practices, especially when struggling economies came knocking on the door for lending purposes. A new law will force the costs of bank failure bailouts on private sector creditors.
An End To Taxpayer-Paid Bank Bailout Packages
Whenever a bank or other major financial institution fails, there is usually one and the same reason for this event: failing lenders. Up until this point, the costs for bailout packages to save banks from certain doom were paid by taxpayers, but that will no longer be the case thanks to a new law that went into effect. From now on, private sector creditors will take the financial hit if a bank fails, as the costs of these bailout packages have gotten way out of hand.
Since the beginning of 2008, which was not that long ago to most people, failing lenders have cost EU taxpayers over €1 trillion. It was about time this ridiculous scenario came to an end, as the taxpayer is not to blame for the failing banks. Now that financial institutions are no longer able to get their hands on “easy” bailout packages, they might finally start to get their act together.
Moving away from government-funded rescue packages will prod financial institutions to step up their game, and be more careful as to who they lend money to and from. Over the course of the past seven years, countries like Greece, Portugal, Ireland, and Spain have all received massive bailout packages, all of which are paid by the EU taxpayers.
It is important to note this new law applies to all eurozone states, in an attempt to break the vicious cycle of bad lenders and governments purposely devaluing certain currencies. Forcing the private sector to pay the costs associated with bailing out failing banks will be an interesting turn of events in the EU.
Regarding eligibility for this “bail-in,” any senior bondholder or depositor valued at over €100,000 will be called into action when the situation requires it. The process would work as follows: every shareholder and bond owner would lose a minimum of 8 percent of their total liabilities before financial aid will even be discussed. Great Britain is exempt from these rules for the time being, however.
Pumping Money into Failing Banks is a Money Sink
Another noteworthy statistic comes in the form of the amount of money pumped into failing banks since October 2008. Between then and December, 2012 – which is a period of slightly over four years – over €1.6 trillion has been given to troubled banks. As a result of these care packages, the economy in both Ireland and Spain came under heavy duress, and public finances were imperiled.
The Single Resolution Mechanism, which will act as a new Eurozone-wide insolvency fund, has gone into effect as of January 1 as well. The goal of this fund is to collect contributions from the banking industry to prevent future economic shocks affecting the Eurozone. As a result, European banks had to increase their capital buffers and comply with a whole new set of financial regulations.
Despite all of the money pumped into troubled banks in the past, several European countries are still facing financial instability. Portugal and Italy are the two nations at the top of that list, as the local economy keeps struggling and further taxpayers injections are required. It goes without saying this new legislation will have a major effect on both of these countries in the not-so-distant future.
Bitcoin Offers Savers a Solution Outside of Traditional Finance
While all of these financial perils matter to all citizens in the European Union, consumers need to be aware of alternative solutions in existence today. Bitcoin provides all citizens of Europe with an alternative financial system, which is not controlled nor regulated by governments or banks by any means.
However, Bitcoin is not something most everyday consumers have a lot of faith in right now. Over the past six years, there have been multiple allegations regarding the usage of Bitcoin, and mainstream media has given the digital currency an aura of “something that only internet criminals use.” Nothing could be further from the truth, though, as Bitcoin is used for many different things, and criminals would be wise not to use the not-so-anonymous digital currency.
What are your thoughts on this new law preventing taxpayers from paying for bank’s mistakes? Let us know in the comments below!
Source: Telegraph UK
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