By Jerry Ackerman and George Crowell,

The CCPA Monitor, July–August, 2013

“The ‘bail-in’ procedure was approved by the G-20 nations at their summit meeting

in 2011, and was formally implemented for Canada in the 2013 Federal Budget passed

on June 10.”

One of our most solidly entrenched assumptions, going back even to childhood, is

that when we deposit our money in a bank, it is safe and available for our use at any

time. So back in March when we learned that the European financial powers-that-be

were arranging to rescue the troubled banks of Cyprus by appropriating the money

entrusted to them by depositors, we were shocked. We might have been less disturbed

if a portion only of large uninsured deposits were to be taken. But when we learned

that 6.75% even of small, insured deposits under 100,000 euros were targeted, we

fully understood why Cypriots were angrily protesting in the streets. These protests led

the Cypriot Parliament courageously to take small depositors off the hook – except

for any hardships which result from having their withdrawals limited to 300 euros per

day. But 60% of deposits over 100,000 euros were seized to rescue the banks and,

allegedly, the economy of Cyprus.

This procedure – this theft – is now known as a “bail-in” as distinguished from a

“bail-out” such as that engineered massively in the US in 2008 in order to rescue the

“too-big-to-fail” banks, whose speculative and fraudulent practices brought on the

devastating, ongoing Great Recession. A bail-out steals from taxpayers, whereas a

bail-in steals from depositors. Pretty much the same people.

But we in Canada can take comfort, can we not, from the oft-repeated assurance

of the Harper government that our exceptionally sound Canadian banking system

is immune from such abuses. How, then, are we to account for the fact that the 2013

omnibus Federal Budget, passed June 10 courtesy of Harper’s majority Conservatives,

included a barely noticed provision announcing that any major Canadian bank which

may get into deep trouble will be rescued through a bail-in?

Here is the wording of that provision:

“The Government proposes to implement a ‘bail-in’ regime for systemically important

banks. This regime will be designed to insure that, in the unlikely event that a

systemically important bank depletes its capital, the bank can be recapitalized and

returned to viability through the very rapid conversion of certain bank liabilities into

regulatory capital. This will reduce risks for taxpayers. The Government will consult

stakeholders on how best to implement a bail-in regime for Canada….”

Included among “bank liabilities” are our deposits; “regulatory capital” consists

of shares of the bank’s stock. With bank insolvency imminent, “certain bank liabilities”

(how vague can you get?) – including insured and uninsured deposits, mutual

funds, “guaranteed” investment certificates, retirement savings plans, etc. – would be

subject to conversion into bank shares. The funds realized would be used in attempts to

bring the troubled bank back to solvency. Depositors would no longer have immediate access to their money, but as shareholders, would be free to sell their stock, perhaps at a considerable loss.

Responding to expressions of alarm about this Budget provision, the Harper

government issued a “clarification”: “The bail-in scenario described in the Budget

has nothing to do with depositors’ accounts and they will in no way be used here [in

Canada]. Those accounts will continue to remain insured [up to $100,000] through

the Canada Deposit Insurance Corporation, as always.” Can we trust this assurance? The

legislation says nothing about guaranteeing protection for depositors. And even if

insured deposits are intended for favoured treatment, we have no way of knowing

whether the CDIC would have sufficient resources to cope with a financial meltdown.

And we are expected to be comforted by the fact that taxpayers would be spared!

How did the bail-in procedure get imposed on us? It was embraced as an alternative

to using bail-outs which might provoke resistance from taxpayers and governments

as occurred in Iceland. The Bank of International Settlements, which dominates the

central banks of capitalist nations in the interests of private banking, pushed the bail in

alternative. This procedure was approved by G20 nations at their 2009 meeting. With

passage of our 2013 Budget, we can now be told that bail-ins have been “democratically”

approved for Canada.

And the story gets even worse. As we know, the world’s largest banks have been

gambling with high-risk derivatives on an immense scale – in the US some $230 trillion.

Banks on the losing side of derivative bets can quickly be driven to insolvency.

With the recently accepted bail-in strategy,