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Message: Re: Charts & Comments - 2013 Budget

Apr 05, 2013 11:47AM

Apr 05, 2013 04:47PM

via Globe And Mail

"Sources familiar with the plans say the Canadian bail-in scenario will rely on a specific class of new investments: subordinate bonds and deposit notes. The latter acts similar to bonds, where a large depositor such as an institutional investor or corporate customer with several hundred thousand dollars or more to deposit, buys a deposit note in order to get a slightly better return. It is similar to a contractual arrangement."

Globe

So if the gold price rose, taking the mining shares with it for example, then those types of subordinate bonds and deposit notes with liabilities to buy back mining shares that were sold into the market without owning them, would be subject to bail-in, since they pose a risk of substantial liquidity concern, whereby the deposits are possibly converted to bank shares or some other type of subordinated note.

The banks would take back the original deposit, issue bank shares or junk bonds in lieu of the original deposit, note holders would take the haircut, and the bank would only have to sell enough treasuries to cover buying back gold mining shares that they sold in the millions without first owning them.

The settlement for ABCP sets the legal precedent for the 2013 bail in regime:

http://www.cbc.ca/news/canada/story/2009/12/21/abcp-settlements.html

The 2013 budget might also be aimed at clearing the slate of any oustanding obligations in the ABCP collapse.

-F6

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