Daily Archives: December 1, 2017

Bits and Pieces – 20171130, Thursday

WWIII: In case you weren’t sure China appears to have taken sides: China To Deploy Elite Troops In Syria To Fight Alongside Assad’s Army.

Climate: For the record: Health Officials Warn: 40,000 Could Die As Britain Hit With 3 Week Long Arctic Cold.

Bits and Pieces: George Friedman gives a succinct overview of Iran’s geopolitical position in the Middle-East, along with US blunders: Iran Reshapes the Middle East.

Canada Corner: The Financial Stability Board (FSB) has released their 2017 list of global systemically important banks (G-SIBs) and a new addition is the Royal Bank of Canada. Wikipedia defines a systemically important financial institution (SIFI) as a bank, insurance company, or other financial institution whose failure might trigger a financial crisis. The Basel III accord specifically targets SIFIs by requiring increased bank capital reserves as capital surcharges. The table published by the FSB lists 5 levels of additional capital requirement with the Royal Bank being in the lowest or 1% level.

Of note in the Wikipedia article is the statement: Virtually every Systemically Important Financial Institution operates at the top level as a holding company made up of numerous subsidiaries. Should a SIFI default and particularly a savings bank, this would allow for an orderly structured dissolution of the SIFI in a manner that subsidiaries that have deposits and other financial assets of the general population might be kept operational with assets intact while other subsidiaries are wound up to satisfy creditors. The intent would be to avoid bail-ins of depositors although politicians might be bought off lobbied effectively to go the bail-in route to protect wealthy investors.

The US Federal Reserve examined the adequacy of Basil III provisions for systemic protection in the face of a financial crisis: Are Basel’s Capital Surcharges for Global Systemically Important Banks Too Small?. The assessment of an adequate capital reserve is complex, is probably SIFI-dependent and the Basel III requirements are likely far short of what is necessary to preserve some, if not all, of the 30 SIBs in the event of a global financial system collapse. Since the SIBs known as the “too big to fail” banks are bigger now than in the 2008 financial crisis, the next global crisis will likely be unstoppable. The interconnected nature of the global financial system guarantees the entire house of cards will come down.

We may see one (RBC) or two of the major Canadian banks fail but all may go down due to inter-dependencies. Those banks with the highest international exposure may be the most at risk from a global systemic crisis. I have commented earlier how the Canada Deposit Insurance Corporation (CDIC) has capital sufficient to ensure less than 1% of the deposit base, so your money may be at risk.

The general recommendation by smart asset managers and authors is to  invest part of your capital in hard assets like precious metals and (farm) land. The wealthier are investing in fine art, antiques and precious stones. These will remain when money is totally devalued.

As a final note I would recommend cryptocurrencies only as a speculation in the same class as Dutch tulip bulbs were at one time. I read a reference in the past week to some fellow who lost his hard drive (in an unspecified manner) with the cryptographic keys to his 7500 Bitcoins which are now part of the estimated 4 million lost forever. At around $11,000 a coin currently that has to hurt.

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