Wholesale deposits as hot money. Emphasised.
Thank you Karlsruhe. The German Constitutional Court has suggested that the European central Bank should always be a preferred creditor. This conflicts with the ECB’s comments from 2012 when it had indicated that it would be willing to waive preferred status.
Of course central banks usually lend to banks against security. But the Court goes further in protecting the central bank with it always ranking top in competing for assets. We await the decision of the European Court of Justice.
Meanwhile wholesale depositors – for example corporate depositors – have even greater incentive to ensure they are over the hills and far away when a bank gets into trouble. A hair-trigger response to doubts about a bank was already advisable (see my article), itself re-emphasised by the Cyprus bank rescue that took place between the writing of this and its publication).
Never have funds with a doubtful bank over a weekend, especially one followed by a bank holiday. Or possibly not on a Thursday night in case a bank holiday is declared for the Friday – it takes time to resolve a bank. Perhaps never, to be on the safe side.
Wholesale depositors can’t say they haven’t been warned – especially about eurozone banks.
