Saturday, March 16, 2013

EU policy makers throw HSBC and Standard Chartered deposits under the bus

The BBC's Robert Peston reports that the EU policy makers only violated the sanctity of the deposit guarantee so as to punish money launderers.

There is a wee bit of a problem with this policy that goes by the name of HSBC and Standard Chartered.

For those of you who don't remember, both of these banks just paid a cost of doing business fine to the US for violating its money laundering rules.

If the EU policy makers are to be believed, HSBC and Standard Chartered are no longer covered by deposit guarantees.  After all, we know they have a substantial amount of laundered money in them.

Or are all money launderers not created equal....

A well-placed official rings to tell me why investors should not be panicking that the punishment of Cypriot depositors is a precedent, or that lenders to Spanish and Italian banks will be spanked as well before too long.
A call to control the damage from adopting a stupid policy and undermining the global financial system.
He says the structure of the Cypriot bailout has been determined by German politics. (Aren't all eurozone bailouts fixed in that way?) 
Here is the logic behind imposing a hefty levy on Cyprus deposits, according to this official: 
1) Regulators and politicians are convinced that a vast amount of cash in Cypriot banks belongs to Russian money launderers.
2) Few German politicians of any persuasion would have voted for a Cyprus rescue that simultaneously rescued these launderers.
3) So the only way to get the bailout through the Bundestag is for the launderers to be taxed to the tune of almost 10% of their allegedly ill-gotten cash. And if innocent savers are hurt too, that is the way this particular "Keks" will crumble.
And with that logic, HSBC and Standard Chartered deposit holders have just been thrown under the bus.

Since neither of these banks provides ultra transparency so we can determine if they are solvent or not (if not, it is a question of time before a depositor gets hit for a loss), the best thing a depositor can do is run, don't walk, to the bank and remove all of their money.
On that analysis, private sector lenders either to Spanish banks or to the Italian government - as two topical and relevant examples - need not fear that it is their turn next to take a write-off.
Only true if Cyprus is a one-time policy.  However, no reason to believe this as EU policy makers were willing to throw Greece and Spain into depressions while blaming their citizens.
That may be seen as comforting by investors, up to a point. 
Except that if we are to see the Cypriot rescue as a very public statement that "hot money", which might be deemed to be laundered, has no place in the eurozone, then this money may well be withdrawn from wherever it sits in the currency union.
Hence, HSBC and Standard Chartered are now front and center.

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