After E.U. Bail-Ins and Capital Controls, European Bank Depositors Have a Short Memory

When it comes to investment mistakes and significant events, I am often amazed to see how short people's memories are. One would think that where billions have been wiped off private equity, we as humans will take heed, learn from these gigantic events of our recent past, and be more safely diversified. Since a famous late individual said, "Without memory there is no healing", I believe Americans and Europeans - basically all investors from the collective West in particular, are about to take a trip down memory lane.

This article will not focus on the tremendous losses caused by stock market crashes, which revolved around private investment institutions. Instead, let us focus specifically on the risk of government "bail-ins" and ask: how safe is your money in the bank? Let us refresh our memory to answer this question:

Greece

In 2012, Greece became the first Organization of Economic Co-Operation and Development (OECD) member to default on its sovereign debt, which has been recorded as the largest debt default in world history, according to experts. Greece's financial assistance from other Eurozone (EZ) countries, the International Monetary Fund (IMF), and its bailout package have also been recorded as the largest in world history.

Cyprus

In early 2013, Cyprus underwent a painful economic transition and collapse when Eurogroup and the recently inaugurated President of Cyprus, Nicos Anastasiades, made a rescue deal agreement that would include a bail-in of insured and uninsured depositors across all Cypriot financial institutions. In total, the Troika of the European Commission (EC), the International Monetary Fund (IMF), and the European Central Bank (ECB) were able to fund €10 billion.

 This agreement formed part of Europe's new framework for resolving financial crises of banks through a bail-in mechanism that would require banks' shareholders and creditors to pay their share of the costs. Investors and shareholders may then be at a disadvantage under this model since they could stand to lose their capital without a guarantee of receiving its return.

A New Approach: Bail-in Bailout

Before Europe's new bail-in approach was introduced, the typical way of dealing with economic crises was via a bail-out method. This typically involved governments, central banks, or other public national or international organizations supporting governments to assist banks during economic distress. Bailouts are often the preferred method because they are time-efficient and do not impact the capital of private investors and shareholders.

Bail-in

On the other hand, a bail-in offers a slightly different approach to dealing with a country's financial crisis. What sets a bail-in apart from a bail-out is that it requires that shareholders and creditors pay their share to assist banks in recovering financially.

Bail-in and Cyprus Experiment

Cyprus was one of the first countries where the bail-in method was applied. The consequence was that uninsured depositors in the Bank of Cyprus lost a significant amount of money and did not receive compensation that fairly equated to the depositors' initial losses. This was the case with Mr Panagiotopoulos, who claimed that Laiki Bank stole his family’s money when he woke up one morning to 90% of their capital removed from their bank account, which equated to approximately €1 million.

Civil Engineer Ioannis Kloukinas experienced a similar fate, claiming that he had lost his invested capital, amounting to approximately €1,585 million. Some families lost their entire life's savings, and for some, the associated stress was too much to bear, as was the case for Anastasios Vamvakaris who passed away in 2017 at the age of 90 due to psychological and health issues.

Because of these challenges, offshore banking is becoming more and more attractive to people who want to secure their capital and investments. Both Belize and Panama for example are well-known for their offshore banking offerings, such as zero percent tax on income derived from outside the jurisdiction. It is no wonder that offshore banking has become a popular solution worldwide.

The Benefits of Offshore Banking Jurisdictions:

1. Security and protection of your capital in times of financial instability, 
2. Privacy,
3. Convenient access to funds,
4. Favorable tax laws,
5. International investment opportunities,
6. Beneficial exchange services,
7. Efficient lending, leveraging and credit facilities.

Here is a list of some of the six top offshore banking jurisdiction locations to safeguard your investments and capital:

1. Belize
2. Switzerland
3. Luxembourg
4. Lichtenstein
5. Panama
6. Bahrain

Economists and financial analysts are warning of an upcoming recession in the USA, Canada, United Kingdom, Germany, as well as Japan, due to global growth slowing down at a rapid rate and the swift rise in inflation.

Lessons to be Learned: You may want to diversify and keep some money in offshore banks Most of us will always keep most of our money in our home countries. However, for those investors who face "financial Stockholm syndrome", if recent history could not inspire you to leave 10 to 20% of your savings in a reliable offshore jurisdiction, it is time to have a serious discussion with a professional offshore financial advisor.

Are you ready in case of any bail-ins? Bail-ins impact private stakeholders, as they provide capital, liquidity, guarantees, and other forms of support under this method. This suggests that investing and depositing in onshore banking is risky as you would have to comply with the laws of your resident country. I welcome you to do your own research as to why Belize is so attractive for the purposes discussed here. Be ready for potential future bail-ins and be ahead of the curve.