Big Banks' Plan for Future Rescues vs. Government Regulators

Banks, especially big banks, presented their own proposal for what to do in the event of a bank failure. For one thing, they don't want to take on as much long-term debt as government regulators would have them do.

But the really relevant aspect of these current plans, whether coming from banks or from their regulators, is the fact that the concept of "bail-in" has now taken hold as the center piece of all contingency planning for future banking crises.

The mechanism, known as a bail-in, would be designed to place a greater burden on creditors, rather than on taxpayers, in the event of a bank's demise. One such example occurred last week in the U.K., as Co-operative Bank PLC asked bondholders to take losses to stave off a collapse.

If you're not already doing so, keep you eye on all talk of "bail-in" solutions. It's one of the most important themes right now. It will always be presented with some idea that the average depositor has nothing to fear - their assets are safe. But I wouldn't bet the ranch on this. Don't be naive and accept everything that's said to "reassure" you. Please do pay attention and follow this as it unfolds.





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