IF YOU ARE HAVING TROUBLE UNDERSTANDING WHAT A BAIL IN IS COMPAERED TO A BAIL OUT THIS ARTICLE EXPLAINS HOW THEY WORK AND WHO MAY BE DOING BAIL INS IN THE FUTURE IN THEIR BASIC FORM A BAIL OUT IS A HUGE LOAND OF TAX PAYER MONEY GIVEN TO THE BANKS TO KEEP THEM SOLVENT USSALLY ISSUED FROM THE GOVERNMENT,http://www.ritholtz.com/blog/2013/04/bail-in-vs-bailout/
A BAIL IN IS (CYPRUS) WERE THE BANKS BECOME INSOLVENT AND STEAL CUSTOMER DEPOSITS THAT HAVE BEEN DECLAIRED STOCK AND THE BANK RESERVES THE RIGHT TO CHARGE CUSTOMERS FOR THEIR FUNDS TO BECOME A SLOVENT BANK OR EVEN WORSE WITH HOLD ACCESS CUSTOMERS HAVE TO THOSE FUNDS.http://www.ritholtz.com/blog/2013/04/bail-in-vs-bailout/
GNS+RESEARCH
At Cumberland, in thinking about bail-in vs. bailout, we see the following issues in portfolio management. First, credit analysis is important. Risk needs to be identified and evaluated with the highest standard of integrity. In a private firm, one can give counsel to banking clients and portfolio-management clients and act to sell securities in which there may be very early warning signs of credit deterioration. From a portfolio-management point of view, one should not wait around. Our approach is to run quickly from credit deterioration and hope it does not get worse. Let someone else take that risk, not our client.
The second issue is how to deal with exposure of investments to the financial sector and banks. Clearly, a transition from bailout to bail-in will mean that some banks will do much better than others, and very large banks may do much better than smaller ones. Redeployment of investments within the financial sector is an issue that has to be reexamined.
Lastly, jurisdictions become important. New Zealand, which is moving away from bailout to a complete system of bail-in, is an example of a place where banking has become more dangerous. The government of New Zealand has essentially declared that insurance is too costly and cannot be accurately priced. It has stated it will resolve banking difficulties with the help of larger depositors.
In Canada there is now some discussion of the introduction and development of bail-in. Canada has a fairly clean history when it comes to bank capital and bank supervision. Is this about to change? In the Eurozone and Europe generally we have had this discussion about bail-in vs. bailout for months. Clearly, the proponents of bail-in are growing stronger in Europe, and they are going to affect the characteristics of banks and central banks and the behavior of the finance ministers who determine bank-resolution policy.
Other places in the world where regulation and supervision are strong and dependable, such as Singapore, rise in terms of desirability. Governance of financial systems is paramount. Singapore is a place where governance is very high and perpetrators of bad behavior are punished severely. Perhaps due to that standard, Singapore does not suffer the financial incidents that we see elsewhere in the world, including the US.
The Bob Dylan song says, “The times they are a changin’.” Dylan was probably not thinking about banks and financial assets when he wrote the words, but they certainly do apply today.
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David R. Kotok, Chairman and Chief Investment Officer
Cumberland Advisors
