Opinion: A growing banking crisis…

“Let us not bandy words. We have [created] a new kind of bank. It is called too big to fail. TBTF, and it is a wonderful bank” – Congressman Stewart McKinney (1984).

“2023: Banks failed because they were holding Treasuries and MBS

1965: Banks failed because they were holding Certificates of Deposit” (New Low Observer, 14.03.2023)

The downturn and the insolvency of Signature Bank, Silvergate Bank and Silicon Valley Bank is all significant. It has structural issues, as well as fiscal and possible ramifications far from the shores of the United States of America. These banks are connected in a huge and vast system where liquidity and risky business transactions are happening accordingly. This is all spreading the risks, the investments in government bonds and other financial instruments to possibly secure profit for the shareholders. However, these can default, get costly and lose value when the bonds rates are growing and your stuck with old interests’ rates on the set-bonds. That’s what is happening, and you are losing the trust between the banks and the national reserves selling government bonds.

These American banks was allowed a lot of freedoms and liberties with their holdings. In such a manner, that was opened up in the previous administration. The Dodd-Frank Act was gutted and given the banks less regulations over their business. Therefore, they could take huge risks without any strings or conditions, neither a clear oversight body from the Federal government. Which in the end cost it dearly. In the beginning after lobbying for it… it was profitable and good business. However, now we are seeing the costs of these operations and why the banks are out of business.

These three banks will not only hurt the ones who used these banks for payroll, accounts for their operations and whatnot. There are so many companies and tech-start-ups that will be hurt by the SVB alone. This will further cause harm to the digital space and their innovations, as this part of the economy has already been hit over the last few years. Where we are seeing major companies already sacking and ceasing certain parts of their operations to cut away additional expenses.

We can see the damage it does when Credit Suisse is being hit and lose confidence. It is just showing how the dominions are hit and is in play. Now the burden of the liquidity pools, the customers taking out their funds or moving them to securer accounts. If not they are trying to find other measures or safer bets in the markets. This is all showing the weakness and the lack of funds within the banking system, which isn’t tied up to long-term bonds or yields; that isn’t as viable or valuable as they were last year. It is all ending up to a costly enterprise and the taxpayers are the ones that could lose it all. Since, the banks could be bailed out, but the small earners and customers of the banks aren’t the ones who is getting their monies back. No, that will be for the big-men and the ones who has risked it all – gambled the money and been earning vast profits in the sunshine, but they cannot manage the rain.

The crisis in the banking industry isn’t not only based on the lack of trust or the risky investments with people’s savings. No, it is the lack of cash on hand plus the initial investments into long-term bonds or financial instruments to supposed secure a safe return on the already invested funds in a bank. When the people and businesses hear news of lacking funds and lack of liquidity. They all bomb-rush a bank to take-out or move their funds. Which makes the bank insolvent, when it cannot meet its obligations or pay-out other clients of the bank. That’s when they are forced to close and end their business. This is what is happening these days and it’s crushing it.

We should be worried because this is spiralling in the markets. More and more places are fragile. There is a lack of fiscal funds and of due diligence in the banking sector. They have been able to get away with taking huge risks, but not having back-up or additional funds to cover losses. That is in the end biting the hands that feeds it. Since, they are risking the savings and the funds of businesses using the banks. While not considering the implications of investing these funds. Losing its value and struggling to get rid of old bonds or other assets, which have been the case yet again.

There should be worries on the horizon. The loss of funds, the sudden insolvency and the urgent movement of capital from one bank to another. The risks of further contagions across the banking sector is there. Not only because of the devalue of old government bonds, but the lack of fiscal funds for all the deposits or funds, which the customer is supposed to be able to get. That’s why the banks are failing, and they are not strong or has enough cash-flow on hand. Which is in the end destroying them from within. Peace.

European Countries accept to offer tax-exemptions that benefits Europe while stifling the rest, report claims!

“Considering the strong democratic traditions in Europe, and the fact that taxation is considered an issue of great importance to national sovereignty, it seems rather odd that the EU has taken such a negative approach to the inclusion of developing countries in the setting of global tax standards” (Eurodad, P: 33, 2016)

There are in this world, lots of greedy people and states that want to earn on their own benefit and get the little extra without the second party. That is why the European States do what they can to keep as much benefit of businesses inside their own dominion, even as the businesses are earning their profits in developing countries, this is happening with sophisticated business transactions, sweetheart-deals, letter-box companies and stashing profits into tax-havens.

The ones that doesn’t this tactic, this way of earning higher profits and getting better rates on the production; the reality is that European States has worked coherent to avoid their thieving of funds as the taxation deals and openings of the multi-national companies in Europe. So with these possibilities, there comes also the reasoning that the companies do what they can to stifle the European states in their own scheme to keep them. Certainly the countries getting a point on the dollar instead of multiple points on it; they could get a fair trade out of, but when they are tricking the businesses there, the businesses will do what they can to trick out of them too. The Businesses are not in the country out of love, they are there to earn profits and doesn’t’ care how as long as they get. So long the States are having the set-up to be used, they will use them and the citizens will wonder why the sophisticated businesses pay so little why earning fortunes, while the citizens are paying fairly high tax on the dollar.

Just take a look!

Letter box companies:

“The setting up of letterbox companies is one of the practices used by multinational corporations to avoid paying taxes in countries where their economic activity takes place” (…) “Looking at global investment flows, it is clear that several European countries are major centres providing attractive tax regimes for letterbox companies and thus functioning as conduits for multinationals’ investments. By comparing the statistics of foreign direct investments (FDI), Dutch organisation SOMO shows that the Netherlands is by far the largest exporter of FDI in the world, ahead of much bigger economies such as the United States and China” (Eurodad, P:17, 2016).

Sweetheart deals:

“In November 2014, the LuxLeaks revelations exposed the secret world of Advance Pricing Agreements (APAs) – also known as sweetheart deals – which benefited multinational corporations, in some cases with tax rates lower than 1 per cent.89” (…) “Public insight into these kinds of deals is very rare indeed, since they are kept highly confidential. In fact, the LuxLeaks revelations were followed by legal charges against the two whistleblowers, as well as one of the key journalists, who brought the story to the public. The case is still ongoing in Luxembourg (see ‘Lack of whistleblower protection’)” (…) “Other examples of problematic APAs have been highlighted by the European Commission’s state aid cases. For example, APAs played a central role in the tax arrangements between Luxembourg and Fiat, the Netherlands and Starbucks, and Apple and Ireland. In these cases, the European Commission found the tax advantages given to the multinational corporations, through APAs, to be a violation of the EU’s State Aid rules” (Eurodad, P: 19, 2016).

Tax Treaties:

“Another key concern related to tax treaties is that they often include provisions to lower – or remove – withholding taxes on cross-boundary financial flows, and thus can lead to lower tax income in the countries signing on to such treaties, including developing countries. For example, research by ActionAid shows that a tax treaty between Uganda and the Netherlands, signed in 2004, completely takes away Uganda’s right to tax certain earnings paid to owners of Ugandan companies if the owners are resident in the Netherlands” (…) “The underlying problem in the international tax system today is that multinational companies are treated as a collection of ‘separate entities’ even though in reality they function as unified firms, with subsidiaries under the central control of the parent company. In today’s system, subsidiaries of the same company are expected to trade with each other ‘at arm’s length’, as if they did not have any connection to each other” (Eurodad, P: 21-24, 2016).

Bank Secrecy:

“In order to deal with the tax evasion and avoidance risks related to banking secrecy, some developed countries, such as the EU Member States, have agreed to start exchanging information on financial accounts automatically amongst each other” (…) “This means that, for example, the Belgian tax authorities will, automatically and on a periodic basis, receive information on any bank accounts or assets held by Belgians in other EU Member States. The aim of this automatic information exchange is to improve the efficiency of tax collection and prevent taxpayers from hiding capital or assets abroad” (Eurodad, P: 27, 2016).

Interesting findings from European Countries:

“The Austrian government is against full public country by country reporting, and even the European Commission’s proposal for partially public country by country reporting” (Eurodad, P: 41, 2016).

“Belgium generally has a relatively high number of tax treaties with developing countries, but the average reduction in developing country tax rates through these treaties is low. However, that the average does not show is that several of Belgium’s tax treaties with developing countries are ‘very restrictive’. There are also clear indications that Belgium’s tax treaties have significant negative impacts on the developing countries that sign them. A conservative estimate puts the fiscal cost to 28 developing countries at €35 million in 2012”(Eurodad, P: 41 , 2016). “The Belgian tax treaty system is also an issue of concern. A conservative estimate suggests that 28 developing countries lost €35 million in 2012 due to tax treaties with Belgium” (Eurodad, P: 57, 2016).

“The position of the Czech government on the issue of ownership transparency is ambiguous. On the one hand, the new Czech law is very restrictive in terms of access to information in the Czech beneficial ownership register (in fact, it seems that the definition of the “legitimate interest” is so narrow that in practice it will be inaccessible for the public, no matter if they have a legitimate interest or not)” (Eurodad, P: 42, 2016).

“The Danish government does not support full public country by country reporting. Instead, Denmark supports the proposal from the European Commission, which would only allow the public to get a partial picture of the activities and tax payments of multinational corporations” (Eurodad, P: 42 , 2016).

“Although the French tax treaties with developing countries on average reduce the tax rates less than most other countries covered in this report, France has eight ‘very restrictive’ tax treaties with developing countries. In total, France also has the highest number of treaties with developing countries among all countries covered by this report” (Eurodad, P: 43, 2016).

“The German government has previously worked very actively against the adoption of full public country by country reporting at EU level. Germany remains very sceptical, even towards the proposal from the European Commission, which would only introduce partially public country by country reporting” (…) “Germany’s tax treaties with developing countries are a cause of concern due to the high number of very restrictive treaties. Also of concern is the fact that Germany’s total number of treaties with developing countries is significantly above average” (Eurodad, P: 44, 2016).

“Of all the countries covered by this report, the Irish tax treaties with developing countries introduce the highest average reductions on the tax rates of their developing country treaty partners. Among the Irish tax treaties with developing countries are three ’very restrictive’ treaties” (Eurodad, P: 44, 2016).

“Although the Italian tax treaties with developing countries on average reduce the tax rates less than most other countries covered in this report, Italy and the UK are the countries that have the highest number of ’very restrictive’ tax treaties with developing countries” (Eurodad, P: 45, 2016). “An Italian investigation is also ongoing into Credit Suisse Ag. The Switzerland-based group’s parent company is charged with systematically having helped 13,000 Italian clients to hide their assets of more than €14 billion abroad” (Eurodad, P: 73, 2016).

“According to the Financial Secrecy Index, Luxembourg has the highest level of financial secrecy of all the countries covered by this report (and ranks at number 6 at the global level). The government’s position on the issue of public registers of beneficial owners is unclear” (Eurodad, P: 46, 2016). “In spite of the LuxLeaks scandal, Luxembourg has continued to issue a very high number of advance pricing agreements (or ‘sweetheart deals’) to multinational corporations – with a 50 per cent increase during the year following the scandal. This, as well as the fact that Luxembourg generally has a significant amount of indicators of aggressive tax planning, is highly concerning. Also, on the issue of financial secrecy, Luxembourg remains a high concern – currently placed as number 6 at the list of the world’s most secretive countries” (Eurodad, P: 79, 2016).

“Netherlands currently has some extremely restrictive tax treaties with developing countries, which make it difficult for those developing countries to collect taxes. Netherlands generally also has more tax treaties with developing countries, and is more aggressive in negotiating the lowering of tax rates in developing countries, than the average among the countries covered in this report. In addition, the government does not levy withholding taxes on outgoing payments to tax havens, which would be an effective anti-abuse measure that would not require lengthy treaty renegotiations” (Eurodad, P: 46, 2016). “Leaked EU documents show that the Netherlands is attempting to undermine EU plans to tackle harmful tax practices by introducing a minimum tax rate of 10 per cent for royalties and interest payments. They reveal that the Netherlands has proposed exceptions in the plans for its patent box provision, which can reduce taxation on revenues resulting from research and development to 5 per cent. This provision, which is a key component of the Dutch tax system, would be threatened by a 10 per cent minimum rate” (Eurodad, P: 82, 2016).

“Norway has a high number of ‘very restrictive’ tax treaties with developing countries” (Eurodad, P: 47, 2016). “Norway’s tax treaty with Benin completely prevents Benin from taxing royalty payments to Norway. This is problematic since multinational corporations can use royalty payments between subsidiaries to minimize their profits and thereby avoid taxes in the countries where they have business activities” (…) “Norway does not have a patent box. It does however have a very favourable tax regime for shipping companies, albeit in line with EU countries’ legislation. Shipping income is tax-exempt and qualifying companies instead pay a small tax based on the tonnage of its vessels” (Eurodad, P: 84, 2016).

“Poland has a significant number of ‘very restrictive’ tax treaties with developing countries” (Eurodad, P: 47, 2016).

“Spain has on average been the second most aggressive negotiator when it comes to lowering developing country tax rates through tax treaties. Spain also has a relatively high number of tax treaties with developing countries, which gives even more reason for concern” (Eurodad, P: 48, 2016). “Wealthy Spanish people have doubled their money stashed in Luxembourg (more than €13 billion) – afraid of uncertainty and looking for lower tax rates” (…) “Inside Spain, the Canary Islands (located close to the African Atlantic coast) have a special economic and tax regime that make them “one of the most profitable tax regimes in Europe”, according to PwC. A tax rate of 4 per cent for companies located there is one of the several tax benefits. Special incentives also are applied in Ceuta and Melill” (Eurodad, P: 90-91, 2016).

“Sweden has four ‘very restrictive’ tax treaties with developing countries” (Eurodad, P: 49, 2016).

“Together with Italy, the UK has the highest number of ‘very restrictive’ tax treaties with developing countries. On average, the UK’s tax treaties with developing countries contain relatively high reductions in developing country tax rates. The fact that the UK at the same time has the second highest number of treaties with developing countries gives even more reason for concern” (Eurodad, P: 49, 2016).

If this isn’t eye-opening, than I don’t know, but it shows the systematic state of easy taxation to benefit big-business, the multi-national companies, so they can set-up show and get grander profits, while the states works the perks between them to settle score. The negotiations and the tax-havens gives more space for the companies to fuel money out of Europe and of the Developing Countries, which hurts all sort of government operations as the end-game is that the government doesn’t get the supposed tax-base as that flee to offshore or overseas where the taxations is lax or non-compliance with the place the business actually operates. We all should get our MPs, Senators, MEPs, Governors and all other Elected Representatives, to take action against this sophisticated thieving from the Multi-National Companies and the Representatives who opens the gates for this activity. Peace.

Reference:

EURODAD – ‘Survival of the Richest – Europe’s role in supporting an unjust global tax system 2016’ (15.11.2016).

Press Release: AfricInvest to exit its invesment in Alios Finance S.A. (21.09.2015)