The influence of Brexit on European bank failures

At the time the UK voted to leave the European Union, there were a few banks in the EU in trouble and three of them were at such a point that the central banks of the countries where the branch was located, activated the Deposit Guarantee Scheme or put the bank under resolution. One of these banks was FBME Bank in Cyprus.

The central bank of Cyprus followed the EC directive on bank failures to craft the terms and conditions to apply for the Deposit Protection Scheme. Since April 2016 the DPS is activated, payout of the maximum covered amount of 100.000 Euro started the 15th of June 2016. Customers of FBME Bank in Cyprus finally receive what is rightfully theirs since this date.

The EC directive provides guidelines for the EU member states to implement a legal framework for bank failures. Due to the ‘Freedom of movement’ which was established in 1992 in the Treaty of Maastricht, individual member states cannot block access to the internal market. The result for European bank failures is that payout of insured and guaranteed DPS funds can be made to the exact beneficiaries’ account in one of the 28 member states. A Brexit excludes the United Kingdom from this list of member states. UK customers of European banks that are in trouble and eventually experience a bank failure, are treated as being outside of the EU. This means high costs and different procedures when applying for a second bank account in the remaining 27 member states of the EU.

The impact of a Brexit goes much further than the main issues for which the UK decided to leave the EU. Change from the inside or a prepared Brexit that results in a soft landing would have been more beneficial. What most did not realize is that short term uncertainty, that can take up to five years, creates difficult times for the individual UK residents. People who deserve a worry free life.

It turns out that many banks and other financial institutions are in trouble. Banking changed drastically over the years. From collateral based lending we went to fractional reserve lending and even Governments engage in similar tactics by creating money out of nothing and manipulate the inflation to control the money supply. This system is out of control. In the first few days after Brexit, the central bank of England made a reservation of 250 Billion GBP in order to safeguard the existence of banks and other financial institutions and protect them from market volatility and heavy currency fluctuations. These funds disappeared and do not come back. 250 Billion GBP in just a matter of days that give the UK residents more debt per capita and will raise inflation and raise taxes. Just imagine for one moment what 250 Billion GBP could have done to the health care system, pensions and other social services?