James (Jim) Davis Dec 29, 2015:

Exactly what you said was: "a bank bail-in is where shareholders bear the losses instead of the government/taxpayer". You made no mention of "bondholders" or creditors in general. I don't wish to enter into an argument, but I seriously feel you should read the FT lexicon and the Economist references I gave and think again. Shareholders are always free to open accounts in the banks they have bought shares and invested in, but very few of them actually do, so I fail to understand the point about "shareholders' deposits. The whole thing about a bail-in is that it is normally done by the bondholders and also they don't just bear the losses but also rescue the bank by doing so.

Margherita Russo (asker) Dec 29, 2015:

That is exactly what I said. In a bail-in shareholders and creditors bear the losses, but not simultaneously. First the shareholders, and only later creditors. Shareholders are those who provide the initial capital, while creditors are those who open an account in that bank, depositing their savings. Savings deposits are essential for the national economy because they constitute the capital that can be invested by enterprises, while shareholders' deposits are only used as a guarantee. That is why deposits need to be protected. When the bail-in starts attacking savings deposits, the economy is damaged. If the state is the main shareholder, it can always reinstate the bank's basic capital by printing money, so attaking the shareholder-state is unnecessary because that capital is guaranteed by default. But attacking savings is dangerous, because it doesn't only deprive enterprises from credit that can be reinvested, but it also triggers a run on the bank, leading to general economic collapse.

James (Jim) Davis Dec 29, 2015:

"According to the text" Hi Margherita, I don't have your text, but a bail in is where the bondholders or even other creditors bear the losses. The Financial Times newspaper's lexicon explains in-depth. http://lexicon.ft.com/Term?term=bail_in Again in the case of Cyprus banks not only the bondholders but also current account holders had to "bail in"
The Economist explains: What is a bail-in? | The Economist
www.economist.com/blogs/economist-explains/.../economist-ex...
7 Apr 2013 - By contrast, a bail-in, a term first popularised in the pages of The Economist, forces the borrower's creditors to bear some of the burden by having part of the debt they are owed written off. (In the case of Cyprus, the creditors in question were bondholders, and depositors with more than €100,000 in their accounts.)
Traditionally, if a bank is in trouble it can go to the market and try to raise more equity or issue more bonds to raise loan capital or ask the government to bail it out. A government can give it cash either by buying shares in the bank or by buying bonds it has issued. Alternatively it can guarantee the bank's borrowings.

Margherita Russo (asker) Dec 28, 2015:

According to the text, this is not really correct. A bank is not the same thing as a business: a bank bail-in is where shareholders bear the losses instead of the government/taxpayer, and shareholders are those who contributed the founding capital and gain a profit in the interest rate differrence. In a public bank the shareholder is the state itself, so there is an identity between the subject who is saved and the subject who pays for saving it.

James (Jim) Davis Dec 28, 2015:

A bit difficult to understand the logic here a bail-in is where a bank's creditors bear the losses instead of the government/taxpayer. Just because it is state-owned does not mean you cannot make the creditors bear the losses, although the situation is obviously different.