Home Tags Posts tagged with "banking system"

banking system


Credit Suisse CEO Tidjane Thiam and the bank’s board of directors have offered to cut their own bonuses by 40% ahead of its annual meeting.

The group also proposed to keep total board pay at the same level as 2015 and 2016.

The move follows pressure from Swiss lawmakers and Credit Suisse’ shareholders to address excessive executive pay.

Credit Suisse has posted two straight years of losses but its top 12 executives were awarded 78 million Swiss francs ($77 million) in pay this year.

Tidjane Thiam, who used to head insurance giant Prudential, was awarded 12 million Swiss francs in total pay in 2016.

Credit Suisse’s chief executive said the decision to reduce top executives’ variable compensation reflects “the total confidence” they have in fixing the Swiss bank’s fortunes.

In a letter to shareholders, he wrote: “My highest priority is to see through the turnaround of Credit Suisse which is under way.

“I hope that this decision will alleviate some of the concerns expressed by some shareholders and will allow the executive team to continue to focus on the task at hand.”

Credit Suisse investors are set to meet on April 28. Under Swiss law they get a binding annual vote on executive pay.

The International Monetary Fund has admitted that it made mistakes in handling Greece’s first international bailout.

The IMF said it was too optimistic in its growth assumptions and said a debt restructuring should have been considered earlier.

Greece was granted a 110 billion euro ($145 billion) bailout by the IMF and EU in May 2010.

Another 130 billion euro rescue package was approved in February 2012.

Greece’s first bailout came amid fears the country would default on its debts and that it could spark debt contagion in the eurozone.

The IMF has now released a study looking at the handling of the programme.

It admitted that it bent its own rules on exceptional access for the programme to go ahead.

To justify exceptional access, one of the four criteria that must be met is that public debt is sustainable in the medium term.

But the IMF said: “Even with implementation of agreed policies, uncertainties were so significant that staff were unable to vouch that public debt was sustainable with high probability.”

But staff wanted to go ahead with exceptional access because of fears that any spillovers from Greece would threaten the rest of the eurozone and the global economy.

The IMF then amended the criterion to where debt was not sustainable with high probability, “a high risk of international spillover effects provided an alternative justification”.

The IMF has admitted that it made mistakes in handling Greece's first international bailout

The IMF has admitted that it made mistakes in handling Greece’s first international bailout

The IMF described the programme, which ran from May 2010 to March 2012, as a “holding operation” that gave the euro area “time to build a firewall to protect other vulnerable members and averted potentially severe effects on the global economy”.

It said it had notable successes such as achieving strong fiscal consolidation, Greece remaining in the eurozone and any spillovers that might have had a severe impact on the global economy were relatively well-contained.

But it also said there were notable failures, chiefly market confidence was not restored, the banking system lost 30% of its deposits and the Greek economy experienced a much deeper-than-expected recession.

Greece’s economic output (GDP) in 2012 was 17% lower than in 2009, compared with the IMF and EU’s initial projection of a 5.5% decline. The original growth projections were not marked down until the fifth review in December 2011.

The unemployment rate in 2012 was 25%, compared with the original programme projection of 15%.

The IMF added that in future Fund staff should be more skeptical about official data.

The Fund also criticized the delay in restructuring Greece’s massive debt load by forcing private holders of Greek bonds to take losses, which eventually took place in the first half of 2012.

“Not tackling the public debt problem decisively at the outset or early in the programme created uncertainty about the euro area’s capacity to resolve the crisis and likely aggravated the contraction in output,” the report said.

It said an upfront debt restructuring would have been better for Greece but this was “not acceptable to the euro partners”, some of whose banks held large amounts of Greek government debt.

The report also said there was no clear division of labor between the IMF, the EU and the European Central Bank, the so-called “troika”.

It said that while there were “occasional marked differences of view” within the troika, these were generally not on display to the authorities so did not risk slowing negotiations, and noted that “co-ordination seems to have been quite good under the circumstances”.

[youtube QEITf-iM2N4]

ECB President Mario Draghi has said the initial plan to make small savers pay for the Cyprus bailout was “not smart”.

Mario Draghi said a proposal to make “insured depositors” pay did not come from the European Central Bank, the European Commission or the IMF.

He said the proposal only arose in talks with the Cypriot authorities, and was “swiftly corrected”.

Mario Draghi was speaking after the ECB held eurozone interest rates at 0.75% again.

It was the ninth month in a row that the interest rates had been kept unchanged, but Mario Draghi indicated that the ECB was ready to act, if necessary.

He also suggested that the problems seen for some time in smaller, weaker economies such as Spain, were spreading to stronger economies.

Cyprus eventually agreed a 10 billion-euro ($12.8 billion) international bailout, which will see depositors with more than 100,000 euros lose some of their savings.

Accounts which have less than 100,000 euros in them will not be affected, but would have been under the original bailout proposals.

ECB President Mario Draghi has said the initial plan to make small savers pay for the Cyprus bailout was not smart

ECB President Mario Draghi has said the initial plan to make small savers pay for the Cyprus bailout was not smart

Speaking about the bailout, Mario Draghi said that the initial plan to impose a levy on all depositors “was not smart to say the least”.

He said the ECB did not envisage savers covered by a guarantee – that is, those with up to 100,000 euros in savings – being forced to contribute towards the country’s rescue plan.

“You have a pecking order, and here the insured depositors should be the very last category to be touched,” he said.

“The [European] Commission draft directive foresees exactly this.”

Mario Draghi also told a news conference that the Cyprus bailout was not a blueprint for what would happen in further bailouts.

“Cyprus is no template,” he said.

Mario Draghi was asked whether it would have been better for Cyprus to leave the euro.

“What was wrong with Cyprus’s economy doesn’t stop being wrong if they are outside the euro,” he said.

“So, the fiscal budget stabilization, consolidation, the restructuring of the banking system would be needed anyway, whether you are in or out. To be out doesn’t preserve the country from the need for action.”

Leaving the euro would entail a big risk for Cyprus, and that an exit from the currency could find the country having to pursue reforms “in a much more difficult environment”, he added.

Mario Draghi also said that the recent crisis in Cyprus had “reinforced the Governing Council’s determination to support the euro”.

Despite continuing signs of economic weakness across the eurozone, the ECB president said rates were on hold “for the time being” by consensus.

He said he expected to see a gradual economic recovery in the second part of 2013.

However, Mario draghi said that growth was “subject to downside risks”. Risks included slow implementation of structural reforms by governments, or weak domestic demand.

“These factors have the potential to dampen the improvement in confidence and thereby delay the recovery,” he added.

After his comments the euro fell to its lowest level in more than four months against the dollar, to $1.2745 – the weakest since mid-November – before recovering its losses.

However, Mario Draghi said that inflation would be contained in the medium term, but the bank would act if necessary.

“Our monetary policy stance will remain accommodative for as long as needed,” he said.

“In the coming weeks, we will monitor very closely all the incoming information on economic and monetary developments, and assess the impact on the outlook for price stability.”

Mario Draghi also reiterated that the ECB could not step into the gap left by a lack of action by eurozone governments to solve the region’s debt crisis,

“We cannot replace lack of capital in the banking system or the lack of actions by governments. The most stimulative measures is to pay the arrears.”

The latest indication of the state of the eurozone economy came on Thursday from financial information service Markit, which said the region’s economic contraction had worsened last month.

Its closely-watched composite purchasing managers’ index (PMI), which tracks both the services and manufacturing sectors, also suggested that the German economy slowed to “near stagnation” last month, while France’s recorded its biggest contraction for four years.

Cyprus has officially agreed to a set of measures that will release a 10 billion-euro ($12.8 billion) IMF-EU bailout.

The IMF, which is contributing 1 billion euros, says they are “challenging” and will require “great efforts” from its population.

The measures will consist of doubling taxes on interest income to 30% and raising corporation tax from 10% to 12.5%.

The plan, designed to stabilize Cyprus banking system and government finances, was agreed in principle last week.

Cyprus has agreed to a set of measures that will release a 10 bn-euro IMF-EU bailout

Cyprus has agreed to a set of measures that will release a 10 bn-euro IMF-EU bailout

Cyprus’s new finance minister Harris Georgiades, speaking on his first day in the post, said he was determined to honor the country’s commitments: “The responsibility is great, and the expectations of our citizens greater. Our promise is that we will make every effort for what is best for the nation. Under your guidance I am sure we will succeed.”

Harris Georgiades appointment followed the resignation of Michalis Sarris on Tuesday.

The plans for the two largest banks, Bank of Cyprus and Laiki, are especially controversial, as they will involve heavy losses for depositors with large balances in their accounts.

The IMF, which is providing 10% of the bailout money, said 95% of account holders would be protected.

The majority of accounts have less than 100,000 euros in them, which will not be affected.

However, depositors with more than 100,000 euros will lose some of their savings. Although the exact amount has still not been decided, reports have said they could lose up to 60%.

Cyprus agreed last week to shut down Laiki and transfer deposits of under 100,000 euros to Bank of Cyprus.

The IMF’s managing director, Christine Lagarde, said Cyprus would need to pull together: “This is a challenging programme that will require great efforts from the Cypriot population.”

Christine Lagarde added that its aim was to spread the pain, and “seek to distribute the burden of the adjustment fairly among the various segments of the population and to protect the most vulnerable groups”.

Cyprus is in recession, with unemployment at around 15% and gross domestic product (GDP) down by 3.5% this year.

The country is already planning to introduce austerity measures equivalent to 5% of GDP between 2013 and 2015 through tax rises and spending cuts, but Christine Lagarde said further measures were needed.

The IMF chief said the corporation tax increase and raising of the tax on interest rates to 30% would help bring in another 2% of GDP.

In order to tackle its debt, additional cuts worth 4.5% of GDP would also be needed over the medium term to reach the target of a budget surplus of 4% of GDP by 2018, the IMF said.

Cypriot President Nicos Anastasiades warned there would be “difficult days ahead” that demanded a collective effort.

The IMF said the reform programme would also lead to changes in banking supervision and transparency.

Cyprus’s banking system has been seen by some as a haven for firms, particularly Russian businesses, who wish to avoid close scrutiny of their affairs.

The IMF said that the international rescue effort, which also involves the EU and the European Central Bank (ECB), would be “well paced”.

The IMF’s contribution will need to be ratified by its board in the coming weeks.

Germany and EU leading bankers have urged the Cypriot parliament to quickly find a way of raising the 5.8 billion euros needed to qualify for an international bailout.

German Chancellor Angela Merkel warned Cyprus not to “exhaust the patience of its eurozone partners”, reports say.

The head of one of Cyprus’ biggest banks urged MPs to accept a levy on bank deposits.

This was rejected on Tuesday, sparking a fresh eurozone confidence crisis.

A much-delayed emergency session of parliament is due to vote on a new package of measures to raise the 5.8 billion euros ($7.5 billion) needed to qualify for the 10 billion-euro bailout.

Averof Neophytou, deputy leader of the governing Democratic Rally party, said political leaders were nearing a compromise and a breakthrough was possible on Friday.

Government spokesman Christos Stylianides said the authorities were engaged in “hard negotiations with the troika”, referring to the EU, the European Central Bank and the IMF, the AFP news agency reports.

Banks have been closed since Monday and many businesses are only taking payment in cash.

The details of the latest proposals are not clear and our correspondent says the eurozone will want to examine the figures carefully.

Cypriot Finance Minister Michael Sarris has returned from Moscow, where he failed to garner Russian support for alternative funding methods.

He said a levy “of some sorts” remains “on the table” despite widespread fury among both ordinary savers and large-scale foreign investors, many of them Russian.

One suggestion was to use pension funds to rescue Cyprus’ banking system – an idea condemned by Angela Merkel.

One of Angela Merkel’s allies in parliament, Volker Kauder, said this was “playing with fire”.

He said it couldn’t happen because it would hurt what he described as “the pensioners, the small people”.

German Chancellor Angela Merkel warned Cyprus not to exhaust the patience of its eurozone partners

German Chancellor Angela Merkel warned Cyprus not to exhaust the patience of its eurozone partners

Correspondents say Germany is saying that Cyprus cannot expect any more help from Berlin, or Brussels, than what has already been offered.

The European Central Bank has given Cyprus until Monday to find a solution, or it says it will stop transferring money to the troubled Cypriot banks.

Some help has been forthcoming, with the announcement that Greece’s Piraeus Bank would take over the local units of Cypriot banks. This would safeguard all the deposits of Greek citizens in Cypriot banks.

Earlier, Christos Stylianides urged the country’s MPs to “take the big decisions” to prevent a financial meltdown.

“We must all assume our share of the responsibility,” he said in a televised statement.

Leading Cypriot bankers have urged parliament to accept a levy on bank deposits, as originally proposed under the bailout, but with smaller depositors exempted.

The plan overwhelmingly rejected on Tuesday said small savers would pay a 6.75% levy, while larger investors would pay 9.9%.

Bank of Cyprus chairman Andreas Artemis said: “It should be understood by everyone… especially from the 56 members of parliament… there should not be any further delay in the adoption of the eurogroup proposal to impose a levy on deposits more than 100,000 [euros] to save our banking system.”

If ordinary savers are exempt, then larger investors, many of them Russian, would have to pay an even higher rate, if a levy does remain part of the scheme.

The government fears this would prompt foreign investors to withdraw their money, destroying one of the island’s biggest industries.

With no end in sight to the crisis, businesses in Cyprus have been insisting on payment in cash, rejecting card and cheque transactions.

“We have pressure from our suppliers who want only cash,” Demos Strouthos, manager of a restaurant in central Nicosia, told AFP news agency.

Eurozone partners are saying Cyprus has got to change its banking system, over-reliant on foreign depositors, and the money it needs has to come out of that system, one way or another.

Earlier, talks in Moscow on possible new financial aid from Russia, a key investor in Cyprus, have failed.

Russia’s Finance Minister Anton Siluanov, speaking after talks with his Michael Sarris, said Russian investors were not interested in Cyprus’ offshore gas reserves.

Russia gave Cyprus an emergency loan of 2.5 billion euros in 2011. Anton Siluanov said that no new Russian loan had been on the table with Michael Sarris because of limits imposed by the EU on Cypriot borrowing.

However, Russian PM Dmitry Medvedev later said Moscow had not “closed the door” on possible future assistance.

Cypriot leaders must first reach agreement with their fellow members of the EU, he added.

[youtube -RM6VnOgjvc]

European Union officials have struck a provisional deal on new financial rules, including capping bank bonuses.

Under the agreement, bank bonuses will be capped at a year’s salary, but can rise to two year’s pay if there is explicit approval from shareholders.

The deal was reached late on Wednesday. EU ministers must approve it, although this is considered a formality.

The UK, which hosts Europe’s biggest financial services centre, was opposed to any of caps on bank bonuses.

London argues the rules would drive away talent and restrict growth in the financial sector.

Top bankers and financial traders can earn bonuses multiple times their base salaries. But there has been public outrage over bonuses following the huge bail-outs of banks.

The agreement was reached during eight hours of intense talks in Brussels between members of the European parliament, the European Commission and representatives of the bloc’s 27 governments.

Othmar Karas, the European Parliament’s chief negotiator, said: “For the first time in the history of EU financial market regulation, we will cap bankers’ bonuses.

“The essence is that from 2014, European banks will have to set aside more money to be more stable and concentrate on their core business, namely financing the real economy, that of small and medium-sized enterprises and jobs.”

European Union officials have struck a provisional deal on new financial rules, including capping bank bonuses

European Union officials have struck a provisional deal on new financial rules, including capping bank bonuses

The deal paves the way for Basel III, an overhaul of banking rules.

The G20 group of rich nations had originally planned to bring in Basel III last month, but that has been delayed to January 2014.

Basel III focuses on a ratio of high-quality capital – called tier 1 – which is needed to cushion it against any future shocks. It will rise to 9% after the rules come into effect.

Once the proposals are formally agreed it will start the biggest shake-up of the banking system since the global financial crisis.

The lack of solid financial cushions meant that many banks were vulnerable, and eventually required taxpayer-funded bailouts to avoid bankruptcy.

[youtube eG-KrzOR0L0]


That’s what we use: money based on debt. If we don’t have debt, we don’t have money. When the debt disappears, so must the ‘money’ disappear!

Additional proof that money disappears comes from Report No. 83-125E, Congressional Research Service, Library of Congress, John B. Henderson  Money and near-moneys, 1983 (available online at http://www.bookprep.com/read/uc1.b4177387). On pages 28-29, we read these words (emphasis added):

“On an even more fundamental level, there is the matter of how money is created in the modern world. If the reference is to the statistics of the Federal Reserve, money held by commercial banks, by the Federal Reserve Banks, or by the U.S. Treasury is not counted in the aggregates; in that sense, money is not manufactured, merely because coins are stamped and paper notes are printed.

Nor does the Federal Reserve System alone create money. Rather, it provides the basis on which the commercial banks (and, now, near-banks as well) are permitted to create money, and applies, through fractional reserve requirements, a limit to the quantity of money that the financial system is permitted to create.

Within that limit, it is the private banking institutions that are overwhelmingly the creators of money.

Money is created when loans are issued and debts incurred; money is extinguished when loans are repaid.

A loan from a bank creates a deposit which the borrower may draw upon for the payment of obligations; the payee is the new holder of new money.

Some existing money in circulation must be acquired by the borrower to repay the capital of the loan; when that is returned to the bank it is withdrawn from circulation.”


Let me explain to you exactly what I mean. Tomorrow, you go down to your local bank and borrow $10,000. As we’ve already seen, there is actually no money in the bank, except for a few miscellaneous savings accounts and CDs plus whatever balances exist at any given moment in the banking system’s checking accounts. So to complete your transaction, the bank creates $10,000 and credits it to your checking account (Author’s note: It is allowed to do this by statute, not by Law. Actually illegal or not, this action is totally immoral. And it is a little more brazen than what I am portraying. The bank really steals the “note” you sign at the bank and converts it to the bank’s asset).

In return for the creation of this so-called money, you execute a note for $10,000 at 10% interest, due in one year and present it to the bank. The bank creates the $10,000 by a stroke of a pen and puts it in your account, basing the $10,000 on the promissory note you turned over to the bank, which is actually the only legal tender in this transaction (Author’s note: The bank actually takes your created money, the promissory note, and loans it back to you!) Did you ever wonder why banks required you to have an account? It is the only way they can create the money! In one year to the day, you return to the bank and pay them the $10,000 back. This completes the bookkeeping on the original creation of $10,000. It was created one year ago, and it is destroyed by your return of the funds.


(Excerpts from:  David Gould series, Part VI: What the whole story is all about!)

Swiss bank UBS lost 349 million Swiss francs ($356 million) by investing in Facebook shares, more than halving its profits.

UBS’s second quarter profits were $425 million Swiss francs ($434 million), compared with 1bn francs a year earlier.

Facebook was valued at $104 billion at its flotation in May, but the shares are now 39% below the initial sale price.

As a result, UBS’s investment bank reported a loss in the quarter, compared with a profit of 730 million Swiss francs a year earlier.


Swiss bank UBS lost 349 million Swiss francs ($356 million) by investing in Facebook shares, more than halving its profits

Swiss bank UBS lost 349 million Swiss francs ($356 million) by investing in Facebook shares, more than halving its profits


UBS warned that failure to resolve problems within Europe’s banking system “accentuated by the reduction in market activity levels typically seen in the third quarter” meant its next set of earnings were likely to be flat.

As a result, UBS said it would look at making further cost savings. The Swiss group is already in the process of cutting 3,500 jobs.

The company also said it was on target to meet new Basel III bank rules and would not have to issue new shares to generate additional money.

Its ratio of high quality – tier 1 – capital to lending was 8.8%, just shy of the 9% that will be required from next year.

Deutsche Bank has reported a 63% fall in second quarter earnings to 375 million Euros ($460 million) from 969 million Euros last year.

Like UBS, Deutsche blamed the economic downturn in Europe and the US for lower fees and commissions as firms cut back on big deals and share sales.

In a joint statement, Deutsche’s co-chairmen Jürgen Fitschen and Anshu Jain said: “The European sovereign debt crisis continues to weigh on investor confidence and client activity across the bank.”


China’s central bank has cut its benchmark interest rates for the second time in two months, in a bid to arrest slowing economic growth.

Benchmark lending rates will be cut from 6.31% to 6%, while deposit rates will fall from 3.25% to 3%.

The rate cuts will come into force on Friday and closely follow on from the last cuts made on 7 June.

Before these moves, the People’s Bank of China had not cut interest rates since 2008.

China’s central bank has cut its benchmark interest rates for the second time in two months

China’s central bank has cut its benchmark interest rates for the second time in two months

Commenting on the move, Rupert Armitage, director at Shore Capital, said: “China are cutting rates because they’re experiencing a slowdown.

“Everybody’s been concerned about the economy, but now they’re actually doing something about it.”

The central bank’s rate cuts come on the back of a gradual liberalization of China’s banking system.

Banks can now compete on the interest rates they offer customers, within a stipulated range.

China’s export growth has been hit by a fall in demand from two of its biggest markets, the US and Europe, still struggling with the global debt crisis.

China’s economy grew at an annual rate of 8.1% in the first quarter, the slowest pace in almost three years.

It hopes lower interest rates will help boost domestic demand.


Spain’s borrowing costs have risen to another euro-era record, with lenders demanding a higher interest rate.

The yield on benchmark 10-year bonds hit 7% on Thursday morning, a level which many analysts believe is unsustainable in the long term.

It came as Moody’s cut Spain’s credit rating to one notch above “junk” and ahead of an Italian bond auction.

At the weekend, Spain agreed a 100 billion-euro ($126 billion) bailout of its banks by fellow eurozone countries.

It was hoped that the bailout would help calm fears in the financial markets about the strength of Spain’s banks and ease Madrid’s borrowing costs.

Spain's borrowing costs have risen to another euro-era record, with lenders demanding a higher interest rate

Spain's borrowing costs have risen to another euro-era record, with lenders demanding a higher interest rate

However, Moody’s said the eurozone plan to help Spain’s banks would increase the country’s debt burden.

Moody’s cut Spain’s rating from A3 to Baa3 and said it could reduce this further within the next three months.

If Spain is cut to junk, some index-tracking investors would be forced to sell the country’s bonds. This would add to upward pressure on yields and push Spain’s financing costs higher, heightening the risk that the country will need a full-blown bailout.

The difference in the rate between Spanish and safe-haven German 10-year bonds widened to a high of 5.44 percentage points.

“The risk of losing investment grade pressured the differential this morning and left it at historic highs,” analysts at Spanish brokerage Renta 4 said in a market report.

Italy will test market sentiment on Thursday with the sale of up to 4.5 billion Euros of bonds.

On Wednesday, Moody’s also cut its credit rating for Cyprus by two notches, from Ba1 to Ba3. Cypriot banks are heavily exposed to the troubled Greek banking system.

However, it is unclear whether the Cypriot government will seek a loan from its European partners or will instead turn to Russia, who already provided it with a 2.5 billion-euro loan in December.


Political change within days in Greece may mean the country has to ultimately leave the euro.

If that was to happen, how would they go about introducing a new currency?

Greek voters could this week hand power to anti-austerity parties who want to scrap the bailout, the deal that qualifies Greece for vital eurozone funds.

This would bring the country a step closer to a possible exit from the euro. So how could a new currency like the drachma be (re)introduced?

A new government would have to produce enough new notes to replace those currently in use in Greece while also doing their best to prevent a run on the banks.

It would have to be introduced over a public holiday and there would be an interim phase between currencies.

The preparations would ideally occur in secret, says Jonathan Loynes, chief European economist of Capital Economics.

“If Greece were to introduce a new currency, they would have to impose some capital controls once the change had been announced. This would mean that people would only be able to withdraw a certain amount of money from their accounts, which would be necessary to keep things orderly and avoid a run on the banks.

“Then there would be some sort of public holiday during which banks and financial markets would be closed. In an interim period before the new currency is introduced, people could pay for things electronically or with small denominations of euros until the new currency became available.”

Political change within days in Greece may mean the country has to ultimately leave the euro

Political change within days in Greece may mean the country has to ultimately leave the euro

The new currency would then be introduced on a one-to-one exchange with the old, he says, but at some point the capital controls would be lifted and the new currency would sharply devalue.

This is what happened during Argentina’s economic crisis at the turn of the century. When the banking system came close to collapse, withdrawals were banned. The peso dropped in value, leading to high inflation, after Argentina defaulted on its public debt in 2002.

Recent reports have pointed towards English currency printer De La Rue as a possible source of new drachma banknotes.

Director of marketing for De La Rue, Rob Hutchison, will not comment on speculation that the company has drawn up a contingency plan for the production of new drachma, but he explains that the money-printing process itself can take several months.

“You have to consider the preparation of special banknote paper incorporating security features; the design of the notes; the process of bringing these elements together and then printing. It simply couldn’t be done overnight,” explains Rob Hutchison.

Economist and author of Greece’s Odious Debt, Jason Manoloupoulos, agrees: “I have heard that that the process could take anywhere between three to six months.”

So what is involved in the actual process of changing banknotes?

There is a lot to do, says Julie Girard, currency spokesperson for the Bank of Canada, which has been involved in that country’s recent transition from paper to polymer notes.

The many considerations in currency production range from the selection of the best base material and security features to the design on the notes.

“We have a team of chemists, physicists and engineers whose job it is to go out into the marketplace and see what types of security features are available, both in other currencies and through companies that produce security technology.”

These are assessed, as are different base materials to produce a cost-effective but secure note. Focus groups decide on designs and then notes are produced and distributed, says Julie Girard.

With so many cash transactions and withdrawals now taking place at ATMs and vending machines, these must be adapted to fit a new type of note.

“We spent about two years working with companies that produce machines which dispense, accept and sort paper currency, providing test notes and staff from the bank to help them. Some machines may have needed to be replaced, adapted or upgraded,” says Julie Girard.

Greece wouldn’t have the time that Canada did, but preparations may have been secretly going on for months.

Greeks have already reportedly begun to stash euros in safety deposit boxes and under mattresses.

These notes could be used to finance transactions even if another currency became the local tender, says Michael Massourakis, director of economic research for Alpha Bank, Greece.

“You can’t stop people using that money to buy things, even if you make it illegal to use foreign exchange in transactions. The euro could still be used afterwards on the black market, for example.”

But just how “new” would a new Greek currency be? Reports on Greece’s financial future concentrate on the idea of the drachma – the currency which was replaced by the euro in 2001. Could these old notes be re-used?

Although old drachma were still accepted in exchange for the euro by the Bank of Greece as recently as February 2012, most will have been shredded and burned, says the British Museum’s Thomas Hockenhull.

“If the original drachma printing plates still existed, it could be a fairly straightforward process to change the dates and use the existing machinery,” he says.

And coins may be ditched entirely. “They may just do away with coins and have only paper currency,” says Thomas Hockenhull.

“The cost of producing a coin can be more than that of making a paper note, because of the metal content.”


Spain’s decision to request a loan of up to 100 billion Euros ($125 billion) from eurozone funds to help shore up its struggling banks has won broad support.

The International Monetary Fund (IMF) said the bailout was big enough to restore credibility to Spain’s banks.

Washington welcomed the measure as a vital step towards the “financial union” of the eurozone.

The move was agreed during emergency talks between eurozone finance ministers on Saturday.

IMF managing director Christine Lagarde said the plan for Spain should provide “assurance that the financing needs of Spain’s banking system will be fully met”.

“I strongly welcome the statement by the Eurogroup, which complements the measures taken by the Spanish authorities in recent weeks to strengthen the banking system,” she said.

“The IMF stands ready, at the invitation of the Eurogroup members, to support the implementation and monitoring of this financial assistance through regular reporting.”

Spain's decision to request a loan of up to 100 billion Euros ($125 billion) from eurozone funds to help shore up its struggling banks has won broad support

Spain's decision to request a loan of up to 100 billion Euros ($125 billion) from eurozone funds to help shore up its struggling banks has won broad support

US Treasury Secretary Timothy Geithner welcomed the latest moves as “important for the health of Spain’s economy and as concrete steps on the path to financial union, which is vital to the resilience of the euro area”.

France’s Finance Minister Pierre Moscovici said the deal would “contribute to restoring confidence in the eurozone”.

The president of the European Commission, Jose Manuel Barroso, said he was confident that through bank restructuring and other reforms, Spain could gradually regain the confidence of investors and create the conditions needed for sustainable growth and job creation.

Earlier, Spanish Economy Minister Luis de Guindos announced that his country would shortly make a formal request for assistance.

Luis de Guindos said the help would be for the financial system, not the economy as a whole.

“This is not a rescue,” he said.

He also said the aid would not come with new austerity measures attached to the economy. Spain has already imposed strict economic reforms in a bid to tackle its debt problems.

The loan will bolster Spain’s weakest banks, left with billions of Euros worth of bad loans following the collapse of a property boom and the recession that followed.

Some banks borrowed large amounts on the international markets to lend to developers and homebuyers, a riskier strategy than funding it with deposits from savings.

The exact amount that Spain will receive will be decided after the completion of two audits of its banks, due to be completed by the end of June.

The money will come from two funds created to help eurozone members in financial distress – the European Financial Stability Facility (EFSF) and the European Stability Mechanism (ESM), which enters into force next month.

Investors have recently demanded higher and higher costs to lend to Spain, making it too expensive for the country to borrow the money needed for a bank rescue from the markets.


Spain’s economy minister Luis de Guindos has dampened speculation that the country is about to seek a bailout of its bank sector.

Luis de Guindos said no decision would be made until audits of the banks were completed, possibly by the end of June.

There have been reports in the past few days that Spain was seeking an immediate bailout from eurozone funds.

Luis de Guindos was speaking in Brussels, where plans have been published that aim to ensure that taxpayers do not have to fund future bailouts of banks.

An IMF audit of Spain’s banks is due next week, with further independent reports completed about two weeks after, Luis de Guindos said.

“I have absolutely not discussed any intervention in Spain’s banks today,” he told reporters on the sidelines of meetings in Brussels.

Asked if Spain was preparing a request for EU aid, Luis de Guindos said: “We are not preparing anything… we have a road map.”

With investors demanding higher returns to lend money to Spain, its finance minister said the credit markets were “effectively shut” to Spain, inflaming worries that the country would be forced to join Greece, Portugal and Ireland and seek outside help.

Spain has to find at least 80 billion Euros ($100 billion) to strengthen its banks’ capital buffers.

A key test will come on Thursday, with Spain due to auction up to 2 billion Euros of bonds.

Spain's economy minister Luis de Guindos has dampened speculation that the country is about to seek a bailout of its bank sector

Spain's economy minister Luis de Guindos has dampened speculation that the country is about to seek a bailout of its bank sector

Spain is keen to avoid having to ask for a European Union bailout as this would come with strict conditions.

It is instead seeking funds which could be injected directly into the banking system.

Reports suggesting EU officials are looking at how this could happen contributed to a rally on European markets late in the afternoon.

UK Prime Minister David Cameron and US President Barack Obama kept up pressure on European leaders, calling for an “immediate plan” to restore confidence, after the two men spoken on the telephone last night.

David Cameron is due to meet German Chancellor Angela Merkel on Thursday to discuss the issues.

The European Central Bank (ECB) appeared unlikely to take any immediate action to provide further financial support, despite president Mario Draghi acknowledging the seriousness of the eurozone’s crisis.

After the ECB left interest rates unchanged at 1% on Wednesday, Mario Draghi suggested that further monetary policy was not the answer.

The ECB has provided 1 trillion Euros for the banking system with two re-financing operations, or LTROs, designed to ease borrowing costs.

Despite signs that borrowing costs are once again rising sharply, Mario Draghi said: “The issue now is whether these LTROs would actually be effective. Some of these problems in the euro area have nothing to do with monetary policy… and I don’t think it would be right for monetary policy to fill other institutions’ lack of action.”

On Wednesday, the European Commission unveiled proposals designed to stop taxpayers’ money being used to bail out failed banks.

The aim is to ensure losses are borne by bank shareholders and creditors and minimize costs for taxpayers.

However, new legislation is unlikely to come into force before 2014 at the earliest, too late to protect taxpayers from any further immediate bank failures.

“The proposal we have today may be only useful for the future but it does not solve the current problems we face,” said Sharon Bowles, chair of the European Parliament’s economic and finance committee.

There would be new requirements for countries to prepare for a bank collapse, collecting money through an annual levy on banks that would be used to provide emergency loans or guarantees.

The European Commission plans involve drawing up a EU-wide framework that would allow:

• Financial regulators to be more “intrusive” in the running of banks as firms’ stability worsens

• Forcing banks to draw up explicit “recovery” and “resolution” plans in the event of their finances deteriorating

• Countries to enforce the sale of all or a part of failed banks, overriding the rights of shareholders or creditors

• Appointment of a “special manager” at a bank to “restore its financial situation”

• Laying the foundations for an “increasingly integrated EU-level oversight of cross-border entities”

The changes form part of commitments agreed by the leaders of the G20 group of major economies in September 2009.

Michel Barnier, the commissioner who unveiled the plans, said: “We must equip public authorities so that they can deal adequately with future bank crises. Otherwise citizens will once again be left to pay the bill, while the rescued banks continue as before knowing that they will be bailed out again.”

If it wins the backing of EU countries and the European Parliament, the law would mark a step in the direction of the banking union supported by European Central Bank president Mario Draghi.