Sunday, March 22, 2015

Quiet Bail In Takes Place in Austria

This story did not make many headlines, but very quietly it appears that a bail in will be needed in Austria as a big bank there fails. This UK Telegraph article does cover it and calls it a "mini Greece." Below some quotes from the article and then a comment.


"Ah Austria, land of schnitzel, lederhosen, Mozart, alpine meadows and beer drinking. Less widely appreciated is its special place in the history of catastrophic banking crises.
It was the failure of Creditanstalt, a Viennese bank founded in 1855 byAnselm von Rothschild, that arguably sparked the Great Depression, setting off an unstoppable chain reaction of bankruptcies throughout Europe and America.
No-one would think that what happened last week at Austria’s failed Hypo Alpe-Adria Bank International falls into quite the same category; we are meant to be in the recovery phase of the latest global banking crisis, so this is more about re-setting the system than again bringing it to its knees, right?
Well, make up your own mind. I suspect neither financial markets nor policymakers have yet caught onto the full significance of the latest turn of events.
In a nutshell, the Austrian government has had enough of funding the bank’s losses, and announced plans to “bail-in” external creditors to the tune of €7.6bn instead." . . . .    read full story here
My added comment:
It looks like this bank failure in Austria may provide a hint of how these failures will be handled going forward. Also, the article mentions there is a risk of contagion further into Europe:
"In Hypo’s case, the bail-in also threatens knock-on consequences for public bodies elsewhere, including Bayern Landesbank, a big holder of Hypo bonds which is owned by the German state of Bavaria, and the Munich based FMSW, which is again publicly underwritten.
All this is just the tip of the iceberg; Europe is awash with interlinked banking and public liabilities, many of which will never be repaid and basically need to be written off.
Massive creditor losses are in prospect. The European authorities had us all half convinced that Europe’s debt crisis was over. In truth, it may have barely begun."

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