Where does all the lottery money go?

The Sociedad Estatal de Loterías y Apuestas del Estado (SELAE) is immune to rising inflation, increasing its turnover to a new record of almost 10,000 euros in sales. What does it do with all this money?

According to data from the Sociedad Estatal de Loterías y Apuestas del Estado (SELAE), the Consumers and Users Organisation (OCU) and the Consejo Empresarial del Juego (CeJuego), 84% of the Spanish population aged between 18 and 75 – almost 23 million people – spend an average of 67 euros per person on the Christmas Lottery alone and some 42,000 million euros in total over a year on all types of games of chance.

The rise in inflation over the last two years has changed the habits of many citizens who are working more, cutting back on savings and taking out more credit to cushion the impact of rising prices. Even so, SELAE’s 2023 results confirm that gambling continues to be inescapable for millions of people.

Created in 2011 and heir to Loterías y Apuestas del Estado (LAE), SELAE had a turnover of 9,957 million euros in 2023, obtaining a net profit of 2,188.7 million euros, which is equivalent to an increase of 9.8% compared to the 1,993.6 million in 2022. This is the best result since its incorporation. Moreover, its projections for this year’s financial year point upwards.

The Christmas Lottery accounts for almost 30% of total revenues and contributed sales of 3,319 million, 4.36% more than the previous year. Likewise, the El Niño draw improved by 6.89%, the Thursday draw by 5.15% and the Joker draw by 11.72%. These figures are equivalent to 60.7% of the business, the rest of which is divided between Primitiva, EuroMillions and Bonoloto, among others.

With these revenues, the state entity that administers the lotteries is positioned as the Spanish public company with the highest profits, ahead of AENA, Paradores and, it goes without saying, Correos.

The distribution of revenues and profits

When talking about the money spent on the lottery, it is essential to understand how this revenue is distributed. The public lottery operator’s money is divided into five areas: prizes, operating costs, commissions for lottery administrations, taxes and contributions to social and cultural causes.

Approximately 70% of the money raised is returned to players in the form of prizes. This figure may vary slightly depending on the type of game and the specific lottery, but generally speaking, most of the revenue is directly reinvested in prizes. Of course, the tax authorities keep the money from any winning Christmas lottery tickets that are not sold.

The State takes 20% in taxes for prizes over 40,000 euros and accounts for 35% of this entire market. For the Sorteo Extraordinario de Navidad alone, it pockets around 160 million euros. The second-largest company in the sector is ONCE, with a share of almost 15%.

As for how this money is reinvested, the entity points out that ‘SELAE returns a large part of the profits obtained, either directly to society, culture and sport, in the form of agreements and sponsorships as part of its corporate social responsibility programme (…) and indirectly by paying dividends to its shareholder, the State, which in turn uses them for public purposes’.

This contrasts with Loteries de Catalunya, which allocates 100% of its profits to the Fund for Prosperity and Social Cohesion of the Generalitat de Catalunya, which is responsible for developing social actions and programmes for the most disadvantaged groups in Catalan society. In 2022, the last published financial year, this amount was 6.5 million euros.

Fund lawsuits against banks. Get justice done and returns on your savings above inflation thanks to the compensation the banks will have to pay. All the information about Litigation Funding can be found at 11Onze Recommends.

The expected rate cut announced by the ECB, which is likely to take place on 6 June, does not ensure that a regressive process of cuts will begin and could be of limited duration as inflation continues to exceed the targets set by the bank and is expected to persist at around 3%.

High inflation and the monetary policy of the European Central Bank (ECB) had a significant impact on mortgage borrowers in Europe. High interest rates have pushed up monthly repayments on variable-rate mortgages, putting many families in difficulties as they eagerly await the 6 June cut announced by the ECB.

Christine Lagarde, president of the European Central Bank (ECB), acknowledged on Tuesday that the rate cut that everyone expects at the meeting on 6 June is almost a done deal: ‘If the data we receive reinforces the level of confidence we have now, there is a high probability that the rate cut will take place at the meeting on 6 June’, Lagarde stated to Bloomberg.

Even so, this rate cut, the first since 2019, may be merely symbolic and with an expiry date that will do little to help families with difficulties in paying mortgages, who will have to prepare to face a high Euribor for longer than expected.

Despite sharply lowering its inflation forecasts, the ECB’s high interest rates are at levels not seen since 2001: the deposit rate is at 4%, the refinancing rate at 4.5% and the marginal lending facility at 4.75%. In 2019, these rates were around 0% and some experts expected a return to these levels, but now persistent inflation is expected to remain close to 3% for the eurozone. This figure is far from the 2% the European institution would like to maintain in the medium term.

More inflationary net factors

Although some economists believe that inflation will continue to fall to 2% by 2025, analysts at Commerzbank predict that the inflation rate will approach 3%, limiting the ECB’s rate cuts. They believe that by spring 2025 at the latest, the central bank is likely to realise that inflation has not fallen as much as anticipated and that it will have to end the cycle of interest rate cuts.

‘The effects on inflation could undoubtedly be even greater,’ the German bank says. Although much has been said about 3D inflation: decarbonisation, deglobalisation and demographics as some factors contributing to the inflationary scenario in recent years, Commerzbank’s analysis extends these to 5D inflation, adding defence investments and the public deficit.

Energy transition and deglobalisation are expected to maintain inflationary pressure, while ageing populations are expected to raise labour costs. At the same time, defence and public spending will divert resources, increasing production costs and stimulating demand, which raises prices.

Higher wage costs and low productivity

The substantial rise in wage costs is again dominating price developments and is likely to continue, a fact that is particularly evident in labour-intensive services. Also, according to the ECB, collectively agreed wages could increase by more than 4.5 per cent in the remainder of the year.

Moreover, wages are likely to rise much more next year than in the pre-pandemic years. With many businesses complaining about a shortage of skilled people, the workforce will still have a strong bargaining position.

Over the next ten years, the ageing of the population is expected to contribute increasingly to the reduction in the supply of workers. However, the demand for services such as health care for the elderly will also increase significantly.

On the other hand, Commerzbank points out that the 1.2% increase in labour productivity assumed by the ECB is too optimistic. It argues that while it is true that productivity tends to rise more strongly at the beginning of an upswing – as companies are better able to utilise their employees – complaints about labour shortages suggest that the employees they have are already heavily utilised at present. Therefore, the scope for productivity gains is likely to be limited and may not be able to significantly curb the rise in unit labour costs.

In conclusion, it seems clear that barring an unexpected event, inflation will not shortly return to pre-pandemic levels and interest rates will remain high for the time being. Therefore, households with variable mortgages have to prepare for an unfavourable economic environment and an Euribor that will not come down as much as expected.

Fund lawsuits against banks. Get justice done and returns on your savings above inflation thanks to the compensation the banks will have to pay. All the information about Litigation Funding can be found at 11Onze Recommends.

Senior NATO officials warn that European governments must prepare for war with Russia. The EU could have only three years before Russian President Vladimir Putin starts bombing major European cities.

Amid the disastrous Ukrainian counteroffensive, the failure of the US government’s agreement to continue funding the war and the growing popularity of Donald Trump’s candidacy, some European nations and NATO are stepping up alarmist rhetoric against Russia in what looks like a desperate attempt to prolong the conflict and ensure the steady flow of money to the Western military-industrial complex.

Dutch Lieutenant Admiral Rob Bauer, chairman of NATO’s Military Committee, claimed last month that NATO countries are preparing for the possibility of all-out war with Russia within the next 20 years. These statements appeared to be coordinated with an interview published in The Times on 28 January, in which Lieutenant General Alexander Sollfrank, commander of NATO’s military logistics centre in Germany, warned that the military alliance must be prepared for possible Russian missile attacks on Europe in the event of an all-out war with Russia.

Sollfrank and other NATO generals doubled down on the alarmist rhetoric by warning that a direct military confrontation with Russia could occur as soon as within the next three years. In the same vein, Bauer said that people would have to prepare for compulsory military service in the next two decades, “It is the whole society that will be involved, whether we like it or not”, while praising Swedish army commander-in-chief General Micael Bydén for declaring that all Swedes need to mentally prepare for the possibility of war as the country moves towards NATO membership.

In the same week, retired General Sir Richard Sherrif, a former NATO commander, said in Sky News interview that the time has come to “think the unthinkable” and consider introducing conscription to prepare the country for a possible ground war. He added that even if Russia is defeated in the war against Ukraine, it will remain determined to rebuild another Russian empire.

We learn from history we do not learn from history

This ploy of the North Atlantic Treaty Organisation’s war cheerleaders is hardly original; Benjamin Netanyahu has for months been trying to justify the continuing genocide in Gaza by comparing the Palestinian resistance to Islamic State (ISIS) terrorists and warning that they pose a threat to the Western world.

The same scaremongering propaganda that is regularly used against Iran and its alleged nuclear weapons programme, which at the same time fits in with the lies about non-existent weapons of mass destruction with which the invasion of Iraq was sold to us. Moreover, we are now discovering that fear campaigns about the communist threat to justify countless coups and military interventions did not go out of fashion with the end of the Cold War.

And yes, it is not out of the question that the West’s current policy of confrontation with Russia will eventually drag the continent into a war over much of the territory of the European Union. Even so, the solution has to be centred on avoiding, not promoting, armed conflicts, and facilitating a peace agreement in Ukraine, instead of castrating the negotiations to perpetuate a war that is highly profitable for certain actors and lobbies.

11Onze is the community fintech of Catalonia. Open an account by downloading the super app El Canut for Android or iOS and join the revolution!

The price of gold has reached another all-time high, standing at 2,259 euros per ounce. Economic uncertainty, geopolitical tensions and the Fed’s likely interest rate cut are driving the price of gold higher up, which has risen 17% since the beginning of the year.

Gold has hit another all-time high as the Federal Reserve (Fed) looks ahead to the expected rate cut amid economic and geopolitical uncertainty. On Monday, the price of gold reached 2,259 euros per ounce, surpassing the previous record set in April, to stand at 2,235 today.

Since the beginning of the year, gold has risen 17%, following the upward trend of 2023 when, although it experienced some fluctuations throughout the year, it rose 15% on the back of the US banking crisis, geopolitical tensions, war conflicts and the US Federal Reserve’s monetary policy.

Analysts are positive about the upward trend in gold prices, which in recent days have been strongly boosted by the latest macroeconomic data from the United States. Headline inflation rose to 3.4% in April, mainly due to higher energy prices adding to goods price inflation. Excluding energy prices, core inflation slowed to 3.6% from 3.8% in March, reviving expectations that the Fed will finally cut interest rates.

Investors had expected two rate cuts by the end of the year, which could come in the face of slower-than-expected growth and persistent inflation. The US economy could be heading towards a stagflation scenario that would be difficult to correct because monetary and fiscal measures to combat stagnation tend to spur inflation and vice versa.

Is this a good time to buy gold?

In the current economic context, gold has once again shown itself to be a key investment for those seeking to protect their wealth against market volatility or to obtain returns on their savings, well above the remuneration offered by banks for their customers’ deposits. But will the price of gold continue to rise?

Gold prices are multifaceted and rarely respond to a single trigger, but are driven by several factors, even so, some factors indicate that the upward trend will continue. Leaving aside the possible lowering of interest rates by the Fed, in the current geopolitical environment, the US administration’s increasing instrumentalisation of the global financial system to sanction countries that do not align with Washington’s foreign policy has created distrust of the Western-dominated monetary system.

This has been accompanied by a technological Cold War against China and fear of a debt crisis in the US. The Asian giant intentionally minimises its exposure to the dollar, buying large amounts of gold, more than 300 tonnes of gold worth $561 billion in the last eighteen months alone, and selling more than $74 billion worth of US Treasury bonds in the last year.

On the other hand, gold’s meteoric rise could also be driven by the US presidential election in November, which Donald Trump has a good chance of winning and which presents a very favourable backdrop for the gold price to reach $3,000 per ounce much sooner than expected.

Preciosos 11Onze makes it easy to buy gold, at the best price and with total security. Give us a call and speak to one of our agents without any obligation to clarify any doubts you may have and protect yourself from economic crises with the ultimate safe-haven asset: gold. If you want your savings to keep or increase their value, Gold Patrimony.

Faced with slower-than-expected growth and persistent inflation, the US economy could be heading towards a 1970s-style stagflation scenario amid fading expectations of several rate cuts by the Fed during 2024.

Stagflation is an economic scenario characterised by stagnating economic activity and high unemployment, while inflation is high and sustained over time. This can lead to a situation in which the economy does not grow and people lose the necessary purchasing power to cope with inflation.

This is a difficult situation to correct because monetary and fiscal measures to combat stagnation tend to spur inflation and vice versa. It occurred, for example, in the United States when oil prices rose in the 1970s.

Investor concern about the worst-case scenario

Some analysts warn that the US economy is in danger of facing a similar scenario in the face of slower-than-expected growth and persistent inflation, in a context where expectations of many rate cuts by the Fed during 2024 have faded or are not expected until a more sustained slowdown in inflation is observed.

That said, according to the latest data, US headline inflation rose to 3.4% in April, mainly due to higher energy prices once again adding to goods price inflation. Still, if we exclude energy prices, core inflation fell to 3.6% from 3.8% in March. Both data were slightly softer than expected and reinforced expectations that inflation will continue to fall, albeit in a rather volatile and unpredictable manner.

Bank of America’s latest monthly survey of fund managers for May reflects less optimism for risky assets, a move that accompanies a less than encouraging outlook for economic growth. For the first time since November 2023, the managers surveyed expect lower economic growth over the next 12 months, even though most rule out a recession next year.

The Fed says there is no danger of stagflation

Federal Reserve Chairman Jerome Powell, downplayed the idea of possible stagflation during a press conference following the central bank’s April policy meeting, saying he did not understand where this fear of stagflation was coming from because we were in a very different scenario: “There was 10% unemployment. Inflation was in single digits. And today? “Now we have 3% growth and 3% inflation,” Powell said.

However, Tom Essaye, founder of Sevens Report Research, noted that although “in an absolute sense”, economic growth is not at levels that imply stagflation, the published data are increasingly “conclusive that economic momentum is slowing” and added that “While stagnation has not yet arrived, the data show a greater likelihood of it occurring than at any time in the last year and a half”.

Against this economic backdrop, it is hardly surprising that gold has become the most traded financial asset after currencies, exceeding 150 billion euros daily in the last twelve months. It shows once again that investors and individuals are choosing the golden metal to protect their money in the face of economic uncertainty.

Preciosos 11Onze makes it easy to buy gold, at the best price and with total security. Give us a call and speak to one of our agents without any obligation to clarify any doubts you may have and protect yourself from economic crises with the ultimate safe-haven asset: gold. If you want your savings to keep or increase their value, Gold Patrimony.

La manca de pluges porta a reduir el subministrament d’aigua a molts municipis del nostre territori. Restriccions que afecten directament a l’agricultura, i en conseqüència, al bestiar. L’increment dels costos de producció i la pèrdua de collites per falta d’aigua tenen un impacte significatiu en l’augment de la inflació. Ens ho explica Sílvia Garriga, agent 11Onze.

L’escalfament del planeta provocat per l’activitat humana ha aguditzat la sequera, un mal endèmic dels països mediterranis. Un fet que queda palès en l’estat de les reserves d’aigua d’aqüífers i pantans del nostre territori. Catalunya acumula mesos de sequera i les reserves aigua han disminuït fins al 33%, gairebé a la meitat de l’any passat.

Les pluges i reserves hídriques són cabdals per a la producció agrícola, i tenen un impacte directe en els preus que paguem per productes al supermercat. Aquesta relació entre sequera i inflació no sempre és evident. Com apunta Garriga, “molts de nosaltres no hem estat conscients dels increments de costos de producció provocats per la sequera”.

A la pujada de costos de l’electricitat, combustible, fertilitzants, i pinsos, s’hi suma la pèrdua de conreus per la falta d’aigua, que deixen al sector agrícola sense marge de benefici. “Si es perden collites per la manca d’aigua, la demanda no disminueix, i s’ha d’importar producte que acabarà sortint més car per al consumidor”, explica Garriga.

Més de 500 municipis amb restriccions en el consum d’aigua

Catalunya està patint la sequera més greu des del 2008, quan les reserves d’aigua dels embasaments i conques internes van caure fins al 20%. Davant d’aquesta situació, l’Agència Catalana de l’Aigua (ACA) s’ha vist obligada a decretar l’alerta per sequera a diverses zones del territori, aprovant limitacions en el consum d’aigua a més de 500 municipis. 

Als 301 que ja es trobaven en fase d’alerta, aquest dimarts s’hi van sumar els més de 100 municipis de les comarques de l’Alt Penedès, l’Anoia, el Baix Llobregat, el Barcelonès, el Garraf, el Maresme, la Selva, el Vallès Oriental i el Vallès Occidental, que subministra la conca del Ter-Llobregat, i també als afectats per l’àmbit d’influència de l’embassament Darnius-Boadella.

Encara que no es preveu que la situació s’agreugi tant com per arribar a l’escenari d’excepcionalitat, moment en el qual les reserves baixen del 25%, tot dependrà de les pluges que puguin entrar durant el que queda de tardor. Els mapes de previsió meteorològica a llarg termini fan pensar que, de novembre a gener, hi haurà més pluja de la normal al litoral i a les comarques de Girona, però menys precipitacions de les habituals al Pirineu occidental.

Si vols descobrir com beure la millor aigua, estalviar diners i ajudar al planeta, entra a Imprescindibles 11Onze.

According to a report by Barcelona City Council, Barcelona’s GDP has exceeded 100 billion euros for the first time. The city’s economy has grown more than the Catalan and Spanish economies, and now accounts for more than a third of Catalonia’s GDP.

Barcelona’s gross domestic product exceeded 100 billion euros for the first time in 2023. Specifically, GDP stood at 103,589 million, a nominal increase of 9.6% compared to 2022, when it was 94,521 million.

The figure represents more than a third (35.4%) of Catalan GDP and an increase of 2.8% over the previous year, exceeding the growth of Catalonia (2.6%) and Spain (2.5%), according to the latest annual report on Gross Domestic Product published by the Analysis Department of the Municipal Data Office of Barcelona City Council.

The weight of the services sector

This superior recovery of Barcelona’s GDP can be explained by the weight of the services sector in the sectoral structure of the city’s economy, which is much higher than in the country as a whole, unlike industry.

It is an economic activity that accounts for over 90% of its Gross Value Added (GVA), 15 percentage points more than the sector’s weight in the Catalan economy (75.9%). Services as a whole in the Catalan capital represent 42.3% of the sector in Catalonia, with Information and Communications (73.7%), Financial (57.6%), Artistic and Recreational (51%) and Professional (50.7%) activities standing out, with more than 50% of the Principality’s total.

The service activities with the highest GVA volume in Barcelona are trade, transport, hotels, and restaurants (23.6%), Public administration, education, health and social services (18.1%) and professional, scientific and administrative activities (15.2%). These three activities account for almost 60% of the total services sector.

Wages 15% higher in Barcelona

The activities with the highest specialisation values are Telecommunications, computer, and information services (weight in Barcelona 2.2 times more than in Catalonia), Advertising, professional and technical activities (1.9), Artistic, recreational and entertainment activities (1.6), Legal and accounting activities (1.6) and Financial activities (1.6) and Research and development activities (1.6).

Regarding the distribution of GVA between salaried workers and operating surplus (professional and business income) in Barcelona, Salaried Workers’ Remuneration accounts for 59% of GVA, while in Catalonia this figure is 54%. This differential results from both a higher rate of wage-earning in the economy and, above all, wages in Barcelona, which are 15% higher in Barcelona than in Catalonia.

11Onze is the community fintech of Catalonia. Open an account by downloading the app El Canut for Android or iOS and join the revolution!

The 1980s on Wall Street was a decade of big personalities, big bonuses and a culture of excess that was accompanied by a meteoric rise in drug trafficking. The pressing need to launder large amounts of drug money led to collaboration between banks and criminal organisations.

To the banks and drug cartels, Bob Musella was a wealthy American businessman dressed in Armani who owned a chain of jewellery stores and ran an investment company from Miami. What they didn’t know was that he was Robert Mazur, an undercover DEA (Drug Enforcement Administration) agent who would eventually bring down drug lords and corrupt banks in one of the most successful anti-money laundering operations of all time.

“Miami is the crossroads of the international drug trade and this is where I did a lot of my business,” said Robert Mazur. With the help of two informants connected to a New York Mafia family and another based in Medellín, Colombia, Mazur mounted the most sophisticated undercover anti-money laundering operation ever conducted.

The evidence he gathered from this operation, known as C-Chase, was key for the US Senate Foreign Relations Subcommittee, led at the time by Senator John Kerry, to legitimise the closure of the Bank of Credit and Commerce International (BCCI), controlled by the Pakistani, Agha Hasan Abedi, which was dedicated to laundering money for the Medellín Cartel, led by Pablo Escobar.

The BCCI and the Medellín Cartel

To launder all this drug money, a series of companies were created with the help of some banking institutions, including BCCI. It was the seventh-largest private bank in the world, its reserves exceeded 20 billion dollars, and it had offices in 78 countries, including Spain.

According to US Customs documents, BCCI agents in Panama knew that the money came from drug trafficking by Colombian drug lords. They contacted Musella in December 1987 to suggest ways of laundering the money in several meetings in Miami, Paris, and London.

Law enforcement and investigative authorities nicknamed it the “International Bank of Thieves and Criminals” because of its penchant for serving customers who trafficked in guns, drugs and dirty money. Initially, the bank denied the charges, arguing it was a “malicious campaign” against the institution.

However, US and UK investigating authorities found that BCCI had been “deliberately set up to avoid centralised regulatory review, and operated extensively in secrecy jurisdictions”, adding that “its executives were sophisticated international bankers, the apparent aim of whom was to keep their affairs secret, commit large-scale fraud and avoid detection”. The entity was forced to cease all operations and shut down its business.

Fund lawsuits against banks. Get justice and returns on your savings above inflation thanks to the compensation the banks will have to pay. All the information about Litigation Funding can be found at 11Onze Recommends.

The International Monetary Fund improves its growth forecasts for the Spanish economy this year and places it well above the eurozone average. Even so, it estimates that the unemployment rate will remain at 11.6%, three-tenths of a percentage point higher than it predicted in October.

The International Monetary Fund (IMF) announced on Tuesday that it is cutting its growth forecast for all the major eurozone economies for this year and next year, except for Spain, which it predicts will grow by more than double the eurozone average.

Specifically, it has adjusted its estimate for Spanish GDP growth upwards, aligning itself with the 1.9% forecast by the Bank of Spain for this year, while for 2025 it maintains its forecast of 2.1%, more optimistic than the 1.9% predicted by the Bank of Spain.

As for the rest of the eurozone, it lowers gross domestic product (GDP) growth to 0.8% in 2024, and to 1.5% in 2025, one and two-tenths of a percentage point less respectively than in the update published in January.

It also estimates that German GDP growth will be reduced by three-tenths of a percentage point in both years and will only grow by 0.2% and 1.3% respectively. France’s GDP is also expected to fall by three-tenths of a percentage point, to 0.7% this year and 1.4% in 2025. For Italy, the agency maintains its growth forecast at 0.7% for 2024 and revises downwards by four-tenths to 0.7% in 2025. For Italy, the organisation maintains its growth forecast at 0.7% for 2024 and revises downwards by four-tenths to 0.7% in 2025.

As for world GDP, it will advance somewhat more than expected, with a variation of 3.2% in 2024, one-tenth of a percentage point more than in the previous report, and 3.1% in 2025. This improvement is partly due to growth in the United States, which will grow to 2.7% this year, before slowing to 1.9% in 2025.

Stagnating public debt and unemployment

The IMF notes that “inflation could fall faster than expected if the rate of labour activity continues to rise, allowing central banks to advance their easing plans”.

In this context, he predicts that Spain will be the last major euro economy to overcome the inflationary episode. Specifically, it expects inflation in Spain to fall to 2.7% in 2024, down from 3.9% in its previous estimate.

Despite the optimism regarding Spanish GDP growth, the agency does not expect a substantial reduction in unemployment and debt levels until the end of the current decade and points out that the deficit will remain above 3% until 2029.

On the other hand, the IMF expects unemployment in Spain to fall to 11.6% this year and 11.3% next year, compared to 6.5% and 6.4% respectively estimated for the euro area, remaining at around 11% for the following years.

Likewise, public debt, which this year will stand at over 106% of GDP, will only fall slightly in 2025, to below 105%, and will remain so until 2028 and 2029, when it will fall to 104.6% and 104.2%, respectively.

If you want to discover the best option to protect your savings, enter Preciosos 11Onze. We will help you buy at the best price the safe-haven asset par excellence: physical gold.

Another US bank has failed, central banks offer emergency credit lines and stocks fall. Governments and regulatory agencies assure us that we don’t have to worry about our money and the stability of the banking sector. But should we trust them? What do they say behind closed doors?

The Federal Deposit Insurance Corporation (FDIC) is a US federal agency that was created in 1933 in the aftermath of the Great Depression to protect bank deposits and prevent mass bank failures. Currently, the FDIC insures up to USD 250,000 per depositor, per insured bank, for each account ownership category.

Inside this federal agency we find the Systemic Resolution Advisory Committee (SRAC), an advisory committee established in 2011 by the FDIC as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, a law that was passed in response to the 2008 financial crisis and which introduced a series of measures to regulate the financial sector and prevent future collapses of the system.

The SRAC assists in the management of potential failures of the country’s largest banks and is made up of financial industry experts who advise the FDIC on the development of plans of action in the event of a large-scale banking collapse. The committee comprises members from different sectors of the economy, including representatives from financial regulators, banks, insurance, mutual funds and other entities.

On a need-to-know basis

Members of the SRAC meet regularly to discuss and make recommendations to the FDIC on how to address problems that a financial institution may be experiencing. They provide advice on issues such as resolution planning, identification of a bank’s assets and liabilities, communication with creditors and other related issues to help ensure the stability of the bank and the banking ecosystem. They also establish a plan of action in the event of a possible banking crisis, agreeing on the information to be provided to the public to avoid a collapse of the system.

Some of these meetings are open to the public via webcast and others are held in private, behind closed doors. One of the objectives of the last public meeting, which took place last November, seems to be to avoid widespread panic in the face of a banking crisis that could lead to a massive withdrawal of deposits by people worried about their money. It should be borne in mind that the money we have in the bank is governed by a fractional-reserve banking system, in which only a fraction of the deposits, 1% in the case of the eurozone, are required to be available for withdrawal.

In this context, we should remember that in order to avoid a collapse of the financial system during a banking crisis, the first option is to bail out certain institutions with taxpayers’ money, i.e. an external bailout. But there is also a second option known as an internal bailout or bail-in, whereby the money from shareholders, bondholders and customers with uninsured deposits – amounts above 100,000 euros in the case of the EU – is used to save the bank from falling into bankruptcy. As the committee points out, bank debt today is not systematically protected, and if it gets out of hand, the whole system collapses.

This happened in Cyprus during the 2008 financial crisis, when the government, following the instructions of the Troika (EU, ECB and IMF), confiscated citizens’ uninsured deposits to liquidate and restructure banks, causing a two-week bank shutdown to avoid a likely bank run. Hence, the importance that SRAC places on limiting communication with the general public, lest people want to withdraw their money from these banks before it completely disappears. Privileged information that, according to the committee, must be reserved for a select minority, presumably themselves or the like, who must be privy to it.

Friday news dump

The internet and 24-hour news coverage have not done away with the common PR practice of releasing bad news on a Friday to avoid major media coverage. At least this is the view of the committee’s panel when it points out that when preparing a statement detailing the tough measures that would be applied in the face of a banking crisis it is preferable to release the information “on a Friday, or ideally on a Friday night, so that people are in a position to receive it, understand it and say yeah, that works.”

Perhaps most surprising, or not, are the statements of Gary Cohn, former President and Chief Operating Officer of Goldman Sachs, when he explains that “you have to think about the unintended consequences of taking a public that has more faith and confidence in the banking system than maybe people in this room do (laughter from the audience) that, we want them to continue to have full faith and confidence in the banking system”.

One might think that the banks and regulatory agencies are aware a collapse is coming, but have little interest in letting the public know because they want to use people’s deposits to bail out these banks. Maybe we should know better after what happened during the 2008 crisis or with the failure of Silicon Valley Bank in March this year, when only a select minority who were informed of the seriousness of the situation were able to get their money out in time, but as Hegel said, “The only thing we learn from history is that we do not learn from history”.

If you want to discover the best option to protect your savings, enter Preciosos 11Onze. We will help you buy at the best price the safe-haven asset par excellence: physical gold.