Cyprus Solution for Canada a No-Go...For Now at Least

We begin to see a "Cyprus Solution" pop up now in Canada. A Cyprus Solution would be a plan to deal with a failed or failing bank by confiscating (a/k/a stealing) account-holders money. As the Cyprus drama unfolded, the first recommendation - to steal insured account-holders' money - was rescinded. But the ultimate resolution will include some form of confiscation of account-holders' money, with the final details still to be worked out.

With the cat out of the bag - i.e., taking money from people without their consent, and without any process of rule of law - we can expect this approach to find adherents elsewhere. And so we do now in - of all places - Canada. Why, in heaven's name, Canada?

Canadians tend to believe their banks are safer and more backstopped than elsewhere in the world. The federal government enthusiastically promotes the notion, and loves to take credit for it.

The answer is that Canadian officials want to eliminate the risk of "moral hazard" caused by "too-big-to-fail" banks: they want big banks to know they won't be bailed out if they get themselves into trouble by taking too much risk.

In ruling out future bailouts, Ottawa's logic is simple: Make it clear there is no tax-funded safety net, and you discourage reckless behaviour, protecting taxpayers in the process.

And so they started the process of by including expropriation - confiscation - stealing account holders money. Since that initial proposal, that has been scaled back. But the relevant point is that it was even considered. Cyprus has indeed set a precedent, even for Canada, a country whose banking system is thought to be among the safest, one of the last places you would expect to have your money seized - until now.

It seems the "contagion" let loose in Cyprus has already begun to spread. No, not in bank runs - yet - but in the lawless solutions now being imposed there. Don't be shocked when such "solutions" find their way into your neck of the woods one of these days. Consider the following recommendation to Canadians and start to take stock of your own situation:

The fact is, if Ottawa is seriously contemplating the failure of a Canadian bank, ordinary Canadians might want to do the same, and govern themselves accordingly.

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