View Full Version : Major Eu Bank Has Failed? Liquidity Crisis???

10-14-09, 01:06 AM



FRANKFURT -- The European Central Bank on Tuesday drained €169.68 billion ($250.82 billion) in overnight funds from the money market amid signs that the ample liquidity it has provided to banks isn't fully flowing into the economy.

The ECB mopped up excess reserves held by banks in a special fine-tuning operation, paying them 0.8%, which was above the overnight interbank interest rate of 0.5%.

The central bank slashed interest rates and pumped huge amounts of extra funds into the banking system -- in return for adequate collateral -- after the liquidity shortage that followed the collapse of U.S. investment bank Lehman Brothers last fall.

While those actions have helped keep banks afloat, the money hasn't been fully passed on to the wider economy, analysts say.

ECB President Jean-Claude Trichet last Thursday chided banks in the 16-country euro bloc for failing to pass on more liquidity to households and businesses.

Data released Tuesday showed that liquidity remains abundant. On Monday, banks parked €147.218 billion overnight with the ECB at a below-market rate of 0.25%, rather than lend it out elsewhere at higher rates.

The unsecured segment of the market, where lending isn't collateralized but based on the strength of counterparties' credit ratings, has been hit particularly hard. Banks have shied away from lending as they worried borrowers might default.

"There is a clear dichotomy emerging in the euro zone's financial system, with more-solid institutions regaining access to other providers of liquidity like money-market funds, and others left with the ECB as their one and only source of funding," said Marco Annunziata, chief economist at UniCredit Group.

10-14-09, 02:05 AM
Could it be this (below)? Or a Spanish bank? Moody's (somehow still credible) issued a report about Spanish banks yesterday.


RBS eyes 300 branches sell-off
By George Parker and Patrick Jenkins in London and Nikki Tait in Brussels
Published: October 13 2009 23:16 | Last updated: October 13 2009 23:16

Royal Bank of Scotland is exploring a government-backed plan to give up all of its 312 RBS-branded branches in England and Wales, in a radical move to satisfy Brussels state aid authorities.

Officials close to the negotiations say the plan – mediated by the Treasury – is well advanced and is the favoured proposal being considered by Neelie Kroes, EU competition commissioner, though she is thought to want to force RBS to go further...


Click the link and you won't see the whole article as I did, but search for the exact title using google and you can read the entire piece on ft.com.

10-14-09, 02:27 AM
Greg Pytel's analysis is very relevant here - How the global crisis was manufactured? from convergent to divergent series (http://www.itulip.com/forums/showthread.php?t=12272)

Along with two of his articles

UK government officially confirmed it does not have a clue about the size of the liquidity hole (http://gregpytel.blogspot.com/2009/10/uk-government-officially-confirmed-it.html)

On 28 March 2009, the author of this blog wrote to the British Chancellor of the Exchequer (top Minister for Finance and State Treasury in the UK), Alistair Darling, asking a question:

"What is the size of the liquidity hole in the banking system that the government is currently trying to plug?"

On 1 October 2009 HM Treasury official, Paulette Wright, responded with a lengthy letter listing measures that the UK government has undertaken to ensure the financial system stability, including Assets Protection Scheme (APS). However with respect to the crux of the question the response stated:

"It is not possible to set out estimated costs for certain at this point: part of the point of this scheme is to insure assets the market cannot value at the moment, and due diligence on these contracts is continuing. The Treasury will report any losses through the normal budgeting and accounting process."

Garages and garden sheds up and down the country are full of "assets the market cannot value". They are called 'junk'. Clearly the financial industry have gone bonkers: they hold reserves for cash liabilities not in cash (as if a refinery were holding oil reserves in, say, coal) (http://gregpytel.blogspot.com/2009/10/economic-world-remains-confused.html), they call pyramid scheme operations: "value creation" and they call a resulting unsaleable junk: "assets". Where is the limit to this absurdity?

The UK government admitted that it does not have a clue about the size o the liquidity hole it is trying to plug and signed a blank cheque underwriting any future costs of further bailouts.

The Economist exonerate the bankers (http://gregpytel.blogspot.com/2009/10/economist-exonerate-bankers.html)

Cautious conclusions, based on other fraud investigations, indicate that a bunch of quite (not that) clever financiers changed the banking system practice from "fractional reserve banking" (i.e. lending with loan to deposit ratio below 100%) to, what the author of this blog called, "depleting reserves banking" (i.e. lending with loan to deposit ratio above 100%, which technically and legally is a pyramid scheme).

"Depleting reserves banking" rather than accumulating cash reserves at every deposit – loan cycle, depletes them. To cover this up a lot of instruments and methodology were invented (so-called "financial innovations") giving an illusion that whilst banks' reserves were rid of cash they somehow still had the reserves to cover for cash liabilities. This has nothing to do with whether cash is a paper or electronic record, but who is the guarantor of liability. Cash is guaranteed by a state. This is the key to understand this crisis: whilst capital reserves appeared to have been sufficient at the start of this crisis they collapsed in value as there was no sufficient cash on the market and only a state intervention prevented the financial system from a melt down.

"Depleting reserves banking" practice needed an army of incompetent "professionals" to run it. Incompetent to such a degree that they did not understand that this was a crude pyramid scheme that was bound to collapse (http://gregpytel.blogspot.com/2009/04/largest-heist-in-history.html).

10-14-09, 02:37 AM
Rumor: Call From Japan -- Talks About Depositor Insurance To Be Raised To $1.25mm Per Account In U.s.!!!

FDIC chairwoman: 'I never say never' to borrowing from the Treasury Department
By Jordan Fabian - 10/13/09 10:50 AM ET

FDIC Chairwoman Sheila Bair said on Tuesday that she would prefer not to have to borrow money from the Treasury Department to inject new capital into her cash-strapped agency, but did not rule out the move.

The Federal Deposit Insurance Corporation (FDIC), which provides deposit insurance to banks, has been running low on money due to the large number of bank failures over the past year. The agency has the authority to use funds from an existing $100 billion line of credit from the Treasury to boost its coffers.

But Bair indicated that the agency could be able to remain solvent using its normal funding sources culled from banks.

"Obviously, we have lots of authority to borrow from Treasury, but we want to avoid that," she told CNBC this morning. "Everyone has bailout fatigue. So yes, we do want to avoid that. I never say never.

"But based on our current projections, I think we can continue to rely on industry-funded reserves and resources to get through this," she added.

In an ironic move, senior regulators are considering a plan to allow healthy banks to loan billions to the public entity to keep it afloat, The New York Times reported last month.

Some observers predicted that Bair, who has strained relations with Treasury Secretary Timothy Geithner, would not accept funds from the Treasury.

"Sheila Bair would take bamboo shoots under her nails before going to Tim Geithner and the Treasury for help," Camden R. Fine, president of Independent Community Bankers, told theTimes. "She'd do just about anything before going there."

Bair brushed back Fine's claim on Tuesday.

"That may be overstating it a little bit. But I never say never," she repeated.

"We want to make sure we have enough cushion for our liquidity needs. Our cash position is strong right now, but next year it could go negative," she added.

10-14-09, 06:55 AM
Is the bank failure rumor due to the breakdown in the Hypo Real Estate rescue plan?


German bank rescue failure clouds European united front
(AFP) – Oct 5, 2008
BERLIN (AFP) — Germany weighed the fallout Sunday from the failure of the country's biggest financial rescue in history, after Europe's top four economic powers pledged a coordinated approach to the credit crunch.
German bank Hypo Real Estate (HRE) dropped the bombshell late Saturday that a planned 35-billion-euro (48-billion-dollar) rescue fell through after the banking consortium involved pulled out of the deal.
The news came as the leaders of France, Germany, Britain and Italy huddled in Paris to pledge a more coordinated approach to prevent the meltdown in US financial markets from engulfing their economies as well.
President Nicolas Sarkozy, who hosted German Chancellor Angela Merkel and prime ministers Gordon Brown of Britain and Silvio Berlusconi of Italy, vowed governments would help European banks and financial institutions in trouble.
But the leaders also called for punishing failing bank executives and urged a rapid meeting of the Group of Eight world industrialised powers to marshall a global response to the financial crisis.
While the four powers put on a united front Saturday, there was no talk of a joint bail-out fund for European banks, on the model of the 700 billion dollar US package approved Friday, after the idea was shot down by London and Berlin.
Merkel told reporters that "each country must take its responsibilities at a national level," and added: "It is important to act in a balanced way, and for countries not to cause harm to each other."
That comment appeared to be aimed at Ireland, which has issued a blanket guarantee to bank depositors without consulting its neighbours.

10-14-09, 12:59 PM
C1ue, your source is 1 year old.

10-14-09, 02:59 PM

Bank run - Central Bank must intervene


After speculation about an imminent collapse of the Dutch DSB Bank, the central bank has taken over the financial institution.

Surprising intervene: Before the Holland Central Bank of journalists waiting for explanations.

Speculation had triggered a rush of investors into their accounts. De Nederlandsche Bank said on Monday it had asked the Amsterdam District Court, which represent DSB Bank under their supervision. Reason was a high cash flow, had the existence of the DSB in the short term risk.

All deposits are guaranteed up to a maximum of 100,000 euros each, shared with the Dutch Central Bank. Customers come to the bank itself is no longer their money can now get money from other banks until Wednesday at midnight with their DSB account cash cards.

10-14-09, 03:43 PM
Oops! Should have read my own post... :o

10-14-09, 04:24 PM
Ah, so the liquidity crisis was last year.

I'll drink to that.

10-14-09, 04:34 PM



I read this as "lend it or lose it."

10-14-09, 08:56 PM
See my post on Greg Pytel's thesis. If the thesis is correct, and prima facie, it appears that it is. Then banks have loan/deposit ratios in excess of 1. To get them below 1, they have to reduce their loan portfolio, or increase their deposits.

So evidence tends to indicate that the while the money being pumped into the Banks can be utilized to repair the reserves, it still does not appear to be increasing the deposits -- in fact the total amount of deposits may well be going down.

Thus if the loan/deposit ratio has to get get down to below 1, then the banks may well be literally unable to lend!

It appears, that the US Banking system had a loan deposit ratio of at least 1.25 See Robert Prechter's Nov 2008 article - Why Your FDIC-Backed Bank Could Fail (http://www.safehaven.com/article-11805.htm)

Because U.S. banks are no longer required to hold any of their deposits in reserve, many banks keep on hand just the bare minimum amount of cash needed for everyday transactions. Others keep a bit more. According to the latest Fed figures, the net loan-to-deposit ratio at U.S. commercial banks is 90 percent. This figure omits loans considered "securities" such as corporate, municipal and mortgage-backed bonds, which from my point of view are just as dangerous as everyday bank loans. The true loan-to-deposit ratio, then, is 125 percent and rising. Banks are not just lent to the hilt; they're past it.

One of the problems was that the banks were counting their AAA rated securities which were Supposedly "As good as Cash" as actual cash. When the Asset backed securities market collapsed, those "Cash Reserves" disappeared - and Cinderella's coach reverted to its original status of being a Pumpkin!

10-15-09, 03:44 AM
What I don't get is, if I borrow money, doesn't it get deposited somewhere else? Isn't the problem interest?

10-15-09, 04:22 AM
What I don't get is, if I borrow money, doesn't it get deposited somewhere else? Isn't the problem interest?

We are talking of two different issues. What you are talking about -- charging of interest causes a shift of real wealth from the debtor to the lender -- unless a debt jubilee is declared, or a "potlatch" is held.

But the issue that Greg Pytel talks about has to do with "Fractional Reserve Lending"

What does it mean when a statement is made "Banks create money from thin air?" Are there any limits as to the creation of that money?

The limits on the power of a bank to create money come from the reserve ratio -- or sometimes called the loan/deposit ratio. If suppose the loan deposit ratio is 0.9 -- then the bank is lending 90 cents for every dollar it has on deposit -- and this is where the redeposit of that loan into the banking system comes in. This allows the bank to create 81 cents of further loans. Thus the sum of the series becomes the inverse of the reserve ratio, (in this example 10) Thus for every $ of deposit, the banks could theoretically produce $10 of credit, and the amount of cash reserve in the bank would approach $1, the reserve needed to sustain the loans. This sum becomes larger and larger as the loan/deposit ratio approaches 1 -- When this ratio exceeds 1, then the money supply increases exponentially, and would require an infinite amount of cash in the bank to meet the reserve requirement. With the current loan/deposit ratio exceeding 1.25, the banks got around this problem by treating some of their loans (securitized AAA rated securities) as "As good as cash" and therefore counting towards that reserve -- and incorrectly stated that the ratio was 0.9 -- when in reality it exceeded 1.25

Please do read the articles referred to above. They are very enlightening.

10-15-09, 08:31 AM
See my post on Greg Pytel's thesis. If the thesis is correct, and prima facie, it appears that it is. Then banks have loan/deposit ratios in excess of 1. To get them below 1, they have to reduce their loan portfolio, or increase their deposits.

So evidence tends to indicate that the while the money being pumped into the Banks can be utilized to repair the reserves, it still does not appear to be increasing the deposits -- in fact the total amount of deposits may well be going down.


Pytel again

Explaining the pyramid nature as you noted earlier but also important the tremendous level of opacity to the current situation.


(This article is a technical analysis dedicated to the CEO of one of the largest and most famous banks in the world, referred to in the article “Liquidity risk” (http://gregpytel.blogspot.com/2009/08/liquidity-risk.html), who took care to write to the author of this blog.)

The key issue about banks liquidity is money multiplier. Money multiplier is a ratio of banks balance sheets to cash in circulation. It answers a question: how many pounds on the banks balance sheets does £1 real cash has to cover?

When a loan to deposit ratio is below 100% a money multiplier (MM) is expressed by a formula: MM = 1/(1-LTD) where LTD is loan to deposit ratio expressed in decimal terms. The loan to deposit ratio can fluctuate: i.e. if LTD is 50% then MM is 2, if LTD is 75% then MM is 4, if LTD is 90% then is 10, if LTD is 99% then MM is 100.

Ultimately, if loan to deposit ratio is always kept below 100% then, at any one time, the ratio of total loans to total deposits on the books gives an average loan to deposit ratio (ALTD). This average may be done for a particular bank or for a group of banks or for entire economy. A money multiplier calculated on the basis of such average, 1/(1-ALTD), is a measure of a particular bank’s liquidity, a group of banks liquidity or entire economy liquidity position. A bank's CEO can look at such figure and have an immediate good idea about the liquidity of his bank. A Chancellor of the Exchequer (a Minister of Finance) may look at such figure calculated on the basis of total loans and total deposits for all banks and have a good idea of the liquidity of the banking system.


When a loan to deposit ratio (LTD) is above (or equal) 100%, money multiplier (MM) is infinite.


As it is a cycle, whereby deposits become loans which become deposits and so on, if loan to deposit ratio is above (or equal) 100%, the higher loans result in deposits that result in even higher loans and so on. Therefore in terms of liquidity if at any one time a ratio of total loans to total deposits is taken (which is higher than one) – per bank, a group of banks or entire financial system - it does not give any idea about the prevailing money multiplier as, unlike when loan to deposit ratio is below 100%


Therefore a bank’s CEO or a Minister of Finance does not have an idea about the liquidity based on total loans to total deposits ratio. Perversely, model-wise for the sake of clarity of argument, if there were, say, 20 full cycles with loan to deposit ratio of 117% followed by a full cycle of 0%, then the total loans to total deposits ratio would be below 100% whilst money multiplier would be over 130, i.e. liquidity would be extremely fragile.

If a bank stopped giving loans and started keeping deposits building up liquidity buffer, this would imply that liquidity improved. However if a bank continued to lend with, say, loan to deposit ratio of 105% which could have resulted in overall reduction from 138% to 129% (total loans to total deposits), this would have implied that liquidity actually got worse. As presently the banks have reduced lending heavily, the former rather than latter seems to be the case (but this is a guess) and it is foolish of the government to expect banks to lend more.

We know however that a money multiplier keeps growing very fast (at exponential pace, i.e. it is a pyramid scheme, if loan to deposit ratio is above 100%), and if this continued forever, ultimately, £1 real cash would have to cover the balance sheets that would be infinitely high. As this is impossible, a liquidity crunch is 100% certain in a finite time.


It follows that if loan to deposit ratio is above (or equal) 100%, the higher the loan to deposit ratio, the faster the money multiplier growth. However, in any event, the liquidity risk is 100% in a finite time. It follows that the traditional notion of “stickiness” of funds becomes vacuous as no funds are “sticky” anyway. It is a question when (in a finite time) and in which part of the system the liquidity crunch starts

10-15-09, 09:03 AM
Yes indeed -- The whole series of articles is very important to understanding the "Heist" and yes it was and remains a "Heist" -- in other words, a criminal enterprise and scheme.

Also important is the Jocks/Geeks analogy used by EJ -- and it goes a long way toward explaining why continued Bonus payments are so important to the "Golden Sack Banks" -- namely that the silence of the Geeks can be bought.

The attitude of the CEO of the Bank (refered to by Pytel) reveals that he/she is not versed sufficiently in the relevant mathematics, or has never paid it much regard (not too different from most of the MBAs (Jocks or otherwise) I went to school (Top Five) with. On the other side, the Geeks have no idea of the legality of the products they devise. Legal has no understanding of the products that they are asked to evaluate, and the bosses are only interested in the bottom line --legal or not!

10-15-09, 12:45 PM

What the hell is going on behind the curtain?!

Well, let me tell you, what would you do if you had a couple of million and knew the government may step in and freeze or confiscate you assets? Yes, move them... But what would happen to the bank that is holding your assets if it is in need of capital? LOL, you tell me...!


IRS crackdown brings tax-evasion secrets to light

By Kevin McCoy, USA TODAY
Jeffrey Chernick, a New York representative for Asian toy manufacturers, paid his expenses with checks drawn from one of his bank accounts, just like millions of average Americans.

Average, that is, if the account was held at a Swiss bank and listed under the name of a company in Hong Kong.

And if the owner carried 12 checks totaling about $285,000 into the USA from the Hong Kong firm each year for deposit in a domestic business account. And if the transactions weren't disclosed to the IRS, evading taxes on holdings that in 2005 totaled about $8 million.

Caught in the ongoing U.S. crackdown on offshore tax evasion, the 70-year-old businessman acknowledged the maneuvers to federal prosecutors and tax authorities as he pleaded guilty in July to one count of filing a false tax return. Chernick faces an Oct. 30 sentencing at which he could get up to three years in prison and a fine as high as $250,000.

UBS TAX EVASION CASE: 12 key figures

Details of Chernick's tax evasion — along with similar court cases of other defendants and two Americans who discussed details of their offshore holdings in USA TODAY interviews — provide a look at secret dealings that cost the U.S. $100 billion in annual tax revenue, according to a 2008 Senate report.

It is a world of bank accounts held under corporate names in Switzerland, Hong Kong, the Cayman Islands and elsewhere. A place where wealthy U.S. clients meet their offshore bankers in furtive hotel conferences. And where foreign financial advisers and lawyers deter clients from disclosing assets to the IRS.

"For those still hiding in this shadowy world, it is time to come in and get right with your government or face stiff criminal and financial penalties," said IRS Commissioner Douglas Shulman when Chernick pleaded guilty.

Offering a carrot with the rhetorical stick, the IRS last month extended a six-month program that offers leniency to offshore-account holders who come forward. Now set to end Thursday, the program offers lower civil penalties and in most cases no criminal prosecution.

More than 3,000 have applied, the IRS said in September. Many were clients of UBS, the largest Swiss bank and first target in the U.S. crackdown.

In February, UBS agreed to a $780 million settlement of criminal charges that it had sent bankers posing as tourists into the USA to help clients evade taxes.

Then, in a major crack in Switzerland's reputation for bank secrecy, UBS in August agreed to settle an IRS civil lawsuit by providing data for nearly 4,500 U.S. clients whose accounts once held an estimated $18 billion.

The historic disclosure follows UBS' earlier hand-over of information on 250 Americans whose accounts bore signs of suspected tax evasion — such as being listed under foreign corporations.

'The clients are not victims'

So who are these wealthy Americans? And how and why did they keep assets offshore?

As lawyers around the nation who specialize in tax cases tell it, some are otherwise ordinary Americans seeking deductions not found on any IRS form. "The clients are not victims. The clients are willing participants," says Martin Press, a Fort Lauderdale lawyer who says his firm represents dozens of applicants for IRS leniency.

Chernick, an avid sportsman and hunter who after his guilty plea had to surrender his collection of antique firearms, was among the willing, federal court records show. His attorney, Douglas Tween, declined to comment.

The resident of Stanfordville, N.Y., about a two-hour drive north of New York City, opened an offshore account in 1981 under a Hong Kong entity called JCHERN, the records show.

When he needed money back home, Chernick hand-carried bank checks from the offshore account to a domestic account listed under Jeff Chernick Inc., the firm through which he represents toymakers in Hong Kong and mainland China.

For at least the last decade, Chernick managed foreign accounts in Switzerland and the Cayman Islands via telephone, fax, e-mail and occasional U.S. hotel and Zurich meetings with UBS bankers and other Swiss financial advisers. That group included Swiss banker Hansruedi Schumacher and Swiss attorney Matthias Rickenbach, who were indicted in August on a charge of conspiring to defraud the IRS. They have not been arrested and are believed to be in Switzerland.

Schumacher and Rickenbach "would dress as tourists to avoid detection" during their meetings with Chernick, court records say. Before giving him his financial statements, Schumacher and two UBS client advisers would cut Chernick's name and account number from the paper records "so that they could not be tied to" his offshore holdings.

Schumacher and Rickenbach also allegedly helped arrange Chernick's purchase of a 30-acre parcel next to his home in 2004, the court records show. To avoid the IRS, Chernick arranged the deal to look as if he had borrowed $700,000 from a Hong Kong entity he owned. In turn, the entity purportedly borrowed the money from Simba International, the Hong Kong name on one of Chernick's UBS accounts.

While Chernick knew the transaction "was a sham, he instructed his United States tax preparer to deduct the 'loan interest' he paid on his income tax returns," the records show.

Last year, alarmed over the UBS battle, Chernick raised his concerns with Rickenbach. The lawyer allegedly advised him not to apply for IRS leniency.

Rickenbach said Schumacher knew "a high-ranking Swiss government official" able to get the names of Americans whose UBS accounts would be disclosed to U.S. authorities.

Schumacher allegedly reassured Chernick his accounts would not be turned over. The businessman authorized a $45,000 payment from his UBS holdings to cover what Rickenbach said was the cost of the purported tipoff, court records show.

Only later did the hunter learn that federal investigators were, in fact, hunting him.

Now, on top of criminal penalties, Chernick must refile his taxes for 2001 through 2007 and pay back taxes, interest and penalties for himself and any related corporate entities. And, for failure to disclose the accounts, he faces a 50% penalty for the year with the highest account balance.

The Russian billionaire

This year, five other U.S. clients of UBS — including a Fort Lauderdale yacht broker, a retired Boeing sales manager from the Seattle area and the owner of a New Jersey building supply firm — have been criminally charged. Like Chernick, all have pleaded guilty or signaled plans to do so.

They joined arguably the most prominent UBS client charged by federal tax investigators to date: Russian-born billionaire Igor Olenicoff. He runs Olen Properties, a California firm that owns thousands of residential and commercial units.

U.S. Tax Court records show the IRS alleged that Olenicoff and his wife, Jeanne, owed $44 million in unpaid taxes and $33 million in penalties for 1996 and 1997. The amounts were based on money that purportedly flowed to Olen Properties from Sovereign Bancorp, a company based in the Bahamas.

The IRS argued that Sovereign was a sham company controlled by the billionaire. But Olenicoff, who did not respond to messages seeking comment, contended in Tax Court filings that the firm was formed by the Vozrozhdeniye (Renaissance) Fund, an entity that Russia's then-President Boris Yeltsin created to make foreign investments.

In 2007, Olenicoff pleaded guilty in federal court to a criminal charge of failing to disclose offshore bank accounts he controlled. He paid $52 million to the IRS for back taxes, interest and penalties.

Olenicoff now is suing UBS and Bradley Birkenfeld, his former UBS banker who provided internal banking information to the IRS. The lawsuit accuses UBS of plotting to take control of Olenicoff's accounts while secretly reporting him to U.S. authorities. UBS has denied the allegations.

Unintended consequences

For every Olenicoff and Chernick, tax lawyers say, there are many Americans who used offshore accounts without intentionally evading federal taxes.

People such as the 86-year-old German-American retiree who, with his wife, splits the year between homes in Maine and Florida and recently applied for the IRS leniency program.

He spoke on condition of anonymity because the IRS processing has not yet been completed. USA TODAY interviewed him during a conference call with Press, the Fort Lauderdale lawyer who represents him and verified his statements to the IRS. Press said the man and his wife had a "seven-figure" Credit Suisse account opened about 20 years ago with European inheritances.

"We don't consider ourselves tax cheats," said the retiree, who said he formerly captained a corporate yacht used by one of the world's wealthiest executives. "That money had nothing to do with America. It had never been here. It wasn't earned here."

He said he opened the account because the Polish government at one point tentatively agreed to give him land that had belonged to his ancestors after World War I but had been taken away after World War II. The offer required him to restore the property.

"I thought it would be easier if the money was in a bank in Europe," he said, explaining that the deal later fell through. "I certainly didn't open an account to cheat the U.S. government."

The retiree said he didn't get annual account statements and had little direct contact with his Swiss bankers, apart from one meeting in a Miami hotel.

Americans who inherited assets from family members overseas — including from relatives who died in the Holocaust— make up one of the largest groups of offshore-account holders seeking IRS leniency, says William Sharp, a Tampa lawyer whose firm represents numerous clients who have applied for the program.

Another sizable group, the tax lawyers say, is made up of Americans who opened the accounts while living and working in Europe: account holders such as a California businessman who says he transferred the equivalent of 600,000 Swiss francs from a domestic account to UBS when he worked at a multimedia job in the United Kingdom during the early 1990s.

The businessman, who now works in technology, says he was worried at the time about the state of the U.S. economy after the crash of the dot-com industry. He spoke on condition of anonymity because IRS reviews of his application are still pending.

"It was, to me, just a bank account. California seemed very far away," said the businessman, whose Chicago tax attorneys, Adam Fayne and Robert McKenzie, participated in the telephone interview and verified statements he made to the IRS.

His UBS bankers never mentioned U.S. tax requirements, the businessman says. And, he said, they avoided providing account information via e-mail or traditional mail for fear that they might run afoul of U.S. Patriot Act provisions designed to stop suspicious banking activities.

When he e-mailed requesting investment updates on his account, he'd invariably get a two-word reply: "Call me."

But, even then, "You could never get an exact answer if the question was somewhat complicated," he said.

Concerned after hearing about Birkenfeld, the former UBS banker who gave information to the IRS, the businessman said he opted to close the account this year.

While awaiting an IRS decision, the businessman says, he discovered that UBS' fees deeply eroded his investment gains.

If he had a chance to do it again, he says, "I would never have transferred the money out of the States."

Unintended consequences? Indeed, or maybe not.

11-28-09, 10:48 AM

Bundesbank fears relapse as German banks face €90bn fresh losses
The Bundesbank has told German banks to take advantage of renewed confidence while they can to prepare for likely losses of €90bn (£81bn) over the next year, warning that the delayed shock waves of the economic crisis still pose a major threat to global recovery and bank finance.

The venerable bank said in its Stability Report that the world had narrowly averted a "virtually uncontrollable" collapse in the late summer of 2008. While the credit system has partly stabilised, the underlying problems "are still far from being overcome" and money markets are not yet functioning properly.

"It is already clear that the financial system will be severely tested going forward. Downside risks remain pre-dominant," said the report.

The danger is that a long phase of stagnation and rising job loses in the West sets off "spiralling loan losses in both industry and in the residential and commercial real estate markets. In such an unfavourable scenario, negative feedback between the real economy and the financial system could gain added momentum."

The Bundesbank said the next wave of bank write-downs will come from loan book losses as the default rate on lower-tier companies tops 14pc in the US and 12pc in Europe. German banks alone will have to write down €50bn to €70bn of loans over the next year.

Losses from sub-prime securities are mostly in the open already. Further write-down from collateralised debt obligations (CDOs) - mostly tranches of mortgage debt packaged as securities - are likely to be €10bn to €15bn.

Dominique Strauss-Kahn, the head of the International Monetary Fund, told Le Figaro on Wednesday that banks worldwide have so far admitted to just half of the $3.5 trillion (£2.1 trillion) of likely damage.

"There are still large hidden losses: perhaps 50pc tucked away in balance sheets. The proportion is higher in Europe than in America. The history of banking crisis, notably in Japan, shows that there won't be healthy growth again until the banks have been cleaned up completely," he said.

The Bundesbank report came a day after Berlin agreed to inject up to €4bn to rescue WestLB, the country's third largest state bank. Commerzbank, HSH Nordbank, and Bayern LB have all run into trouble, requiring large bail-outs that have angered German taxpayers. The state Landesbanken emerged as the most reckless, building large liabilities `off-books' through Irish-based investment vehicles.

Paradoxically, Europe's bank problems help explain why the euro has risen to a 15-month high of $1.51 against the dollar. Hans Redeker from BNP Paribas said distressed banks are having to sell assets overseas and repatriate the money to shore up their capital base, pushing the euro towards the pain barrier for many European exporters.