Same thing as if everyone stopped paying any type of loans. A shock to the banking system, potentially a collapse if the debt in question is a significant percentage of all debt. Many people would lose their savings.
And no don’t hope that bank owners would absorb the debt, they would just liquidate the bank in a bankruptcy wiping out everyone’s deposits.
That only applies to cash. The rich have the greater majority of their wealth in assets, so they likely won’t even give a second thought to losing all of their cash. Who it’s actually going to hurt are the middle class workers nearing retirement. The ones who make enough to have some semblance of a retirement fund and who have also moved this fund to cash to reduce volatility.
Deposit guarantee schemes (DGS) reimburse up to a certain amount to compensate depositors whose bank has failed. A fundamental principle underlying DGS is that they are funded entirely by banks, and that no taxpayer funds are used.
Under EU rules, deposit guarantee schemes
protect depositors’ savings by guaranteeing deposits of up to €100 000
help prevent the mass withdrawal of deposits in the case of a bank failure, which can create financial instability
The EU has gradually increased the level of deposit protection since the first directive for DGS was introduced in 1994.
The FDIC is primarily funded through assessments, which are insurance premiums paid by FDIC-insured institutions. These assessments are based on the balance of insured deposits and the risk posed by each bank. Additionally, the FDIC’s Deposit Insurance Fund is invested in U.S. Treasury securities, earning interest that supplements the premiums paid by banks.
Well who is the government? Where do they get their money? It’s it’s us it’s the people. If the nation suddenly owes trillions of dollars to all its people nobody’s getting any money. Best case scenario they just say fuck it nobody’s getting anything. Worst case scenario the country literally collapses.
I thought it was some kind of written guarantee that the banks would only invest/divest the money over the 100k threshold, where if the bank collapses there’d still be the fallback of the money it didn’t invest, and as I’m typing this I instantly know it’s not true and that banks play it all fast and loose and hope that no one finds out…
Banks do have strict risk requirements (i.e. Basel III), in terms of what they are allowed to do with money, and are stress-tested on a regular basis. However, the type of scenario OP is posing would mean every bank would need to write-off their loans, and hope they have capital invested in other places to keep them afloat.
Since banks have these capital at risk requirements, the government feels comfortable to guarantee accounts up to a certain amount, as every bank going down at the same time is generally speaking a very unlikely event. So usually they would cover the account, take over the bank (if needed), put it into administration, and wind-down positions to claw back money to cover the insurance claims.
Remember in the late 2000s when it was discovered they were literally breaking a slew of lending regulations, giving mortgages to people unqualified for them, etc. etc. you can lookup the details but basically they were raping the country’s banks, and then when they were found out, they retired with multimillion dollar retirement packages plus bonuses. And the banks got the federal government to bail them out.
Biggest fucking grift in history and it was not long after the auto industry did the same fucking thing. Again and again this shit happens.
So don’t be under any delusion we could cause any kind of actual consequences to the ultra rich because they’ll just line us up and take the shirts off our backs before they pay a dime.
Same thing as if everyone stopped paying any type of loans. A shock to the banking system, potentially a collapse if the debt in question is a significant percentage of all debt. Many people would lose their savings.
And no don’t hope that bank owners would absorb the debt, they would just liquidate the bank in a bankruptcy wiping out everyone’s deposits.
In Germany, everyone is protected up to 100,000 €. So it would actually be a nice reset button where only the rich would “suffer”
That only applies to cash. The rich have the greater majority of their wealth in assets, so they likely won’t even give a second thought to losing all of their cash. Who it’s actually going to hurt are the middle class workers nearing retirement. The ones who make enough to have some semblance of a retirement fund and who have also moved this fund to cash to reduce volatility.
It would be nice but there’s always a way…
Yeah except it’s backed up by the government. So if it all comes due with the exact same time the people are still paying that money either way.
https://finance.ec.europa.eu/banking/banking-regulation/deposit-guarantee-schemes_en
Similar with the US FDIC:
The FDIC is primarily funded through assessments, which are insurance premiums paid by FDIC-insured institutions. These assessments are based on the balance of insured deposits and the risk posed by each bank. Additionally, the FDIC’s Deposit Insurance Fund is invested in U.S. Treasury securities, earning interest that supplements the premiums paid by banks.
I didn’t understand your second sentence, can you clarify that a bit?
Well who is the government? Where do they get their money? It’s it’s us it’s the people. If the nation suddenly owes trillions of dollars to all its people nobody’s getting any money. Best case scenario they just say fuck it nobody’s getting anything. Worst case scenario the country literally collapses.
I thought it was some kind of written guarantee that the banks would only invest/divest the money over the 100k threshold, where if the bank collapses there’d still be the fallback of the money it didn’t invest, and as I’m typing this I instantly know it’s not true and that banks play it all fast and loose and hope that no one finds out…
I see your point.
Banks do have strict risk requirements (i.e. Basel III), in terms of what they are allowed to do with money, and are stress-tested on a regular basis. However, the type of scenario OP is posing would mean every bank would need to write-off their loans, and hope they have capital invested in other places to keep them afloat.
Since banks have these capital at risk requirements, the government feels comfortable to guarantee accounts up to a certain amount, as every bank going down at the same time is generally speaking a very unlikely event. So usually they would cover the account, take over the bank (if needed), put it into administration, and wind-down positions to claw back money to cover the insurance claims.
Remember in the late 2000s when it was discovered they were literally breaking a slew of lending regulations, giving mortgages to people unqualified for them, etc. etc. you can lookup the details but basically they were raping the country’s banks, and then when they were found out, they retired with multimillion dollar retirement packages plus bonuses. And the banks got the federal government to bail them out.
Biggest fucking grift in history and it was not long after the auto industry did the same fucking thing. Again and again this shit happens.
So don’t be under any delusion we could cause any kind of actual consequences to the ultra rich because they’ll just line us up and take the shirts off our backs before they pay a dime.