Bail-ins are partial bank defaults

Or if you prefer, involuntary borrower-declared debt relief:

Greek banks are preparing contingency plans for a possible “bail-in” of depositors amid fears the country is heading for financial collapse, bankers and businesspeople with knowledge of the measures said on Friday. The plans, which call for a “haircut” of at least 30 per cent on deposits above €8,000, sketch out an increasingly likely scenario for at least one bank, the sources said.

Three things. First, as predicted, the bail-ins weren’t limited to Cyprus, and they won’t be limited to Greece. Second, notice that the amount of deposits immune to bail-ins has fallen from €100,000 to €8,000. Third, this is now entirely legal in most jurisdictions; banks around the world are preparing for just this scenario in your country, everywhere from Australia to the USA.

Remember, a deposit is just an unsecured loan to a bank. So, a bail-in is simply the bank unilaterally telling you that it is not going to pay back a percentage of the loan and will no longer be paying interest on the portion that it will not be paying back.

Why anyone would want to loan to such a borrower without collateral for the paltry amount of interest available, knowing that the borrower can decide at any time how much they want to pay you back (if they want to pay you back at all), is an interesting question to contemplate.