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Bank bluffs

Politicians Ny Tid tries to get in the way, reluctant to reveal the bluff that your bank account should be secured. Or is a lack of knowledge revealed here?


Minister of Finance Siv Jensen has consistently defended maintaining a guarantee of two million kroner for you and me with salary and savings accounts in Norwegian banks, despite the fact that the EU has asked Norway to adapt to a lower European level of 100 euros (a dispensation lasts only ut 000). In the December issue of Ny Tid, we revealed that the equity in the Banks' Guarantee Fund only covers just under three per cent of any deposit – that means 2018 billion out of a total of about NOK 30 billion people have deposited in the banks. This is all the banks' own funds have at their disposal for the individual citizen in the event of a possible collapse in the money / credit market.

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Norway's central bank governor Øystein Olsen. PHOTO: Tore Sætre – Own work, CC BY-SA 4.0. DnB's board chair Anne Cathrine Tanum. PHOTO: Tore Sætre – Own work, CC BY-SA 4.0

Why should this worry us? Maybe because politicians don't tell the whole truth. For the past 25 years, Norway's largest bank DnB has been on the verge of bankruptcy twice, in 1992 and 2008. The likelihood that the Norwegian banking system is going bankrupt is much greater now than it used to be. If that happens, you should be among the first three percent who run to the bank to get your money out, as the rest may have to go home empty-handed.

No one answers. Ny Tid has confronted our Minister of Finance with this guarantee bluff. Four months have passed without us receiving an answer. Idar Kreutzer, CEO of the Banks' Guarantee Fund, has not responded to us either. The fund's board secretary Per Kjensli has responded, and points out with some pride that "the guarantee is better than in other countries". Related issues were politely referred to our political bodies.

In the absence of satisfactory answers, we contacted the Chairman of the Bank's Guarantee Fund Ottar Ertzeid, but here too we were met with silence. It may be because Ertzeid is also Executive Vice President of DnB Markets, the department that, through the Fractional Reserve Lending System (FRL), repeatedly uses depositors' funds to conduct large-scale self-trading and derivative trading to enrich the management, board and shareholders of DnB – thus using the depositor's funds and the depositors' risk. We asked Ertzeids about his view of DnB's big difference between the return on management and DnB's shareholders, and those of depositors – who also have a defective guarantee. Is Ertzeid's loyalty to DnB's employer, where he receives his salary and earnings bonus, or to his depositors who finance DnB? Does he have a conflict of interest? We received no response from Executive Vice President Ertzeid. We passed the questions on to DnB's chair Anne Carine Tanum, but here we were also met with silence.

DnB. Ny Tid has taken a closer look at the accounting figures and the balance sheet in DnB. The figures are frightening: DnB's proprietary trading and derivatives trading are more than three times larger than DnB's equity. DnB's derivative portfolio has a face value of a staggering NOK 7200 billion – ie the size of our oil wealth, and almost exclusively an instrument for increasing the bank's earnings in favor of management and shareholders, with great risk for depositors. Our elected representatives and Norges Bank (NB, the central bank in Norway) seem to agree with this, as NB in ​​an internal memo from 2014 simply excludes – or rather protects – the derivative portfolio should a banking crisis arise. To many, this will seem naive and irresponsible. Should the value fall, or if DnB had to incur a loss of 10 per cent on the proprietary trading / derivatives portfolio, as much as one third of the equity will be lost. The risk of it falling far more is significant – then people in Norway would talk about a "game over".

DnB also does not conduct banking operations in a vacuum. Risk in the European and international banking system is also an integral part of DnB's risk. In Greece and Cyprus, the banks have already gone bankrupt, living on artificial respiration from the European Central Bank (ECB), in other words the future German taxpayers (see New Time June 2015: "A defense to the Greek people"). But Greece and Cyprus are small in the big picture. Italian and Spanish banks have at least 20 percent non-performing loans, and both are kept alive through massive money printing – so-called quantitative easing administered by the ECB, where the bill is pushed into the future. Most likely, the entire European banking system will collapse at some point, and with it DnB and the rest of the Norwegian banks. Politicians and banks know that this can happen soon, and therefore both the EU and Norway have adopted "bail in" rules – which probably means that depositors and taxpayers must settle the bill for the banks' gambling. Bail-in is equal competition rules so that some banks can not only be covered by the state or others.

Finance Committee Chair. After an answer was impossible to find from both the Minister of Finance, the Banks' Guarantee Fund, DnB's management and chairman of the board, Ny Tid approached the head of the Finance Committee, Hans Olav Syversen. At first, Syversen did not want to answer when they found the "language use" of the article author provocative, and made Ny Tid's editor via communications consultant Dag Fedøy in KrF aware that they would not answer. We did not give up, and finally got an answer – with clarification from Fedøy that the answer did not come from Syversen as chairman of the Finance Committee, but as a parliamentary representative for KrF. Where the responsibility as chair of the finance committee stops is not good to say.

Most likely, the entire European banking system collapses at one point, and with it DnB and the rest of the Norwegian banks.

At least through his communication advisor Syversen made an attempt to answer our questions. The answers were partly a lack of knowledge of financial contexts, but an understanding and concern for the financial markets and risk exposure to the banking sector and DnB. Syversen was "pleased that these issues were addressed" and correctly believed that "DnB's own trading, including trading in derivatives, poses a challenge to Norwegian financial stability".

Syversen admittedly had some conceptual confusion when he used "system critical" when he probably meant "systemic risk", which is something else entirely. He also used an unknown term for counterparty risk in a derivatives trade, "derivative creditor».  The term debtor and creditor in connection with derivatives is incorrect. As chairman of the finance committee, Syversen should, strictly speaking, know that this is about "counterparty risk".

Now he is probably not alone in scratching his head when it comes to the extreme derivative exposure at DnB. If we are to believe Norges Bank, Governor Olsen is also confused. In the aforementioned "bail in" note, the derivative portfolio is intended to be be protected if a banking crisis occurs. Has Norges Bank not understood this extreme risk exposure, or are they sticking their heads in the sand confronted with an unsolvable problem that threatens to overthrow DnB and the rest of the world's financial markets? You can not run away in a derivative context, or "pull out quickly", as Syversen suggests to Ny Tid – not as the rules stipulate. A counterparty can sell if another counterparty wants to buy, but then only one counterparty is replaced by a new counterparty.

When Syversen admits that he is concerned about DnB and the financial market's well-being – and KrF, as one of the few parties that has at least made some modest attempts to address the problem in the Storting – one would think that Syversen had a clear the Norwegian people when it comes to the banks' guarantee bluff. As the people's representative, one would assume that his task is to inform the depositors and taxpayers, ie the Norwegian people, that the "guarantee" is quite worthless – and to suggest how the problem should be solved. Syversen answers that "if large banks must be saved from going bankrupt, the State must step in". Here, Syversen goes across adopted European and Norwegian "bail in" rules. One can possibly assume that what he is saying is that when the shareholders and creditors (depositors) have lost all their money, then the politicians can send the bill on to the pension fund or taxpayers to save DnB and the Norwegian banking system. In other words, Syversen kneels down to the power of money at the expense of the Norwegian people.

"Well secured." From Norway's central bank governor Øystein Olsen, the following is stated to Ny Tid about the undercoverage of the deposit guarantee of 97 per cent: "Deposits in Norwegian banks are well secured, and the Norwegian deposit guarantee system is well funded in an international context." In other words, Norges Bank is of the opinion that a guarantee that covers just under three per cent of the guarantee on deposit funds is more than good enough.

Norges Bank also confirms that they will break the European guidelines for a bail in if necessary – that is, "then the State must intervene".

With such statements from both Norges Bank and the head of the finance committee, it is perhaps no wonder that DnB's Rune Bjerke continues to spend your and my money as if they were on a trip to Las Vegas, or that Executive Vice President Ottar Ertzeid and Chairman Tanum of DnB do not find it necessary to answer New Time.

When both power and politicians find our questions both rude and outlandish, this shows how far a neoliberal system has grown into the combination of state and money power, with a pyramid scheme at the expense of each citizen.

How long should you pretend everything is going to end well?

His Eirik Olav
Hans Eirik Olav
Olav has a long time from the financial world behind him.

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