Meanwhile, it seems the FSB is still committed to a 2014 deadline for SAM. Given the range and size of stumbling blocks still to be traversed, I expect if we do go live in 2014 it will be with some transitional measures.

I wouldn’t want anything to do with any bank that has much at all to do with European banks or European sovereign debt. The old South African Rand is seeming like a safer relative bet than at pretty much any other time in the last decade.

Part of the deal is a “50% loss for private investors”. Which is part true and part nonsense but will be an effective Greek default when enacted / agreed. (I don’t care how “voluntary” it may be, it’s a default and almost all definitions of default include restructuring of debt in any way that isn’t what was originally promised.)

Why is it only partly true? Well it’s not necessarily a “loss” for private investors. The probability of default on Greek bonds has been just about 100% for a while now. This probability of default is derived from market prices for Greek bonds and market spreads on Greek Credit Default Swaps (CDS) and an assumed Loss Given Default or Recovery Rate for investors when the bonds do default. Actual Recovery Rates vary widely, but often analysts plug in the average Recovery Rate over most of this century on unsecured debt which is around 40%.

So if market prices for Greek bonds assumed 100% default probability and a 40% recovery, then a 50% recovery doesn’t sound so bad. The potential downside is that Greece may still (need to) default on these written-down bonds at some point in the next two decades.

So the real question is what will the new probability of default be? Then we will know whether investors “took a loss” and perhaps gain the market’s view on how successful the deal really will be.

Hearing that the conditions are sufficiently onerous that the borrower may not want it is great news. At the very least this reflects a balanced package rather than one heavily in favour of the undemocratic absolute monarchy of our neighbour.

I wonder how many of these conditions were added or modified after the initial public announcement. Cosatu, amongst other powerful groups, has also been very outspoken against the loan.

I haven’t seen the data myself, but he points to declining value of transacations as people hoard Bitcoins – exactly what is expected and exactly the catastrophic result that makes Bitcoins a really bad idea for a monetary system.

This is not a new idea, and has historically been resisted by the major banks since they feel, generally rightly, that they are less likely to have a problem of confidence and therefore less likely to benefit from deposit insurance. Smaller banks, on the other hand, are certainly more at risk of a run on the bank arising due to perceptions thus causing a liquidity problem when a solvency problem doesn’t exist.

Determining the appropriate mechanism to charge for deposit insurance is not straightforward. Clearly the charge can’t be the same fixed amount for all banks as the exposure will be very different between banks. The large banks would lobby hard to pay a lower rate (even if a higher overall amount) for the insurance given that they should be less subject to those confidence issues.

But how to determine that difference? One could take cue from the market by looking at credit ratings and, even more market-oriented, the spreads on debt issued by the banks. Three immediate problems come to mind:

1. Credit quality of long-term debt isn’t the same as protection for depositors
2. Probability of default is an input into confidence issues but certainly isn’t the entire story
3. Does anybody seriously still believe in the Efficient Market Hypothesis and trust that we can believe what the market offers as an impartial, objective and balanced view of reality?

So there are some fascinating technical problems to solve when implementing deposit insurance, not least of which is deciding how much gets protected.

What caught my eye was Moneyweb columnist, Phakamisa Ndzamela, demonstrating his disbelief at how deposit insurance could create a moral hazard and ultimately increase risk within the banking system.

some senior bank executives have cautioned that this could push the cost of banking higher and somehow encourage risky lending. [emphasis added]

Obviously Ndzamela hasn’t heard of the Savings and Loan crisis in the US in the 1980s, or, I don’t know, the Global Financial Crisis that we are still in, which was massively exacerbated (if perhaps not quite caused) through risk being accepted without due care because it was being passed off immediately to someone else.