The EU made bank runs a little bit more likely; Update: Cyprus mulls plan to seize 25% of large deposits

  • Posted by a hidden member.
    Log in to view his profile

    Mar 17, 2013 4:04 AM GMT
    This is the height of idiocy. Punishing savers, sending signals to depositors in other countries to withdraw their money if their countries are in negotiations with the EU, and it *still* doesn't make the system safer. To quote another: This haircut-to-depositors violates all the traditional thinking about avoiding bank runs.

    "Unfair, short-sighted and self-defeating"
    http://www.economist.com/blogs/schumpeter/2013/03/cyprus-bail-out

    "Bank runs in Europe? The EU made them a little bit more likely this weekend, and as Cypriots stampede for the shrinking number of ATMs still handing out cash on the island, Italians, Greeks and Spaniards are also beginning to wonder if, with interest rates effectively at zero and confused politicians running Europe’s bank systems, the mattress might just be the safest place for their money after all."
    http://blogs.the-american-interest.com/wrm/2013/03/16/europe-puts-its-faith-in-blanche-dubois/

    "Europe Does It Again: Cyprus Depositor Haircut "Bailout" Turns Into Saver "Panic", Frozen Assets, Bank Runs, Broken ATMs"
    http://www.zerohedge.com/news/2013-03-16/europe-does-it-again-cyprus-depositor-haircut-bailout-turns-saver-panic-bank-runs-br
  • Posted by a hidden member.
    Log in to view his profile

    Mar 17, 2013 12:17 PM GMT
    I was based in Cyprus for 4 years. It is a special case and untypical of other Euro zone countries, because it is well known the banks in Cyprus are used for money laundering by Russian criminals. Understandably, the rest of the Euro zone was not happy about the idea of bailing out the Russian mafia, hence this levy on deposit (savings) accounts.

    Of course it is unfair to smaller savers and those who are not money laundering (including the many British ex-pats who reside there), but had the country suffered a disorderly bankruptcy (which would have happened without the bailout), those savers would probably have lost a lot more. While losing 7% of your savings is a bummer, it is hardly the 'catastrophe' the press are making it out to be.



  • Posted by a hidden member.
    Log in to view his profile

    Mar 17, 2013 3:43 PM GMT
    Ex_Mil8 saidI was based in Cyprus for 4 years. It is a special case and untypical of other Euro zone countries, because it is well known the banks in Cyprus are used for money laundering by Russian criminals. Understandably, the rest of the Euro zone was not happy about the idea of bailing out the Russian mafia, hence this levy on deposit (savings) accounts.

    Of course it is unfair to smaller savers and those who are not money laundering (including the many British ex-pats who reside there), but had the country suffered a disorderly bankruptcy (which would have happened without the bailout), those savers would probably have lost a lot more. While losing 7% of your savings is a bummer, it is hardly the 'catastrophe' the press are making it out to be.





    The problem given the perpetual bailout situation in much of Europe where the underlying issues are never addressed is who is to say that this is the last of it? If it really were a one time exceptional case, then fine... but only the insane would think that it is. Thus expect there to be significant withdrawals both in Cyprus and elsewhere.
  • Posted by a hidden member.
    Log in to view his profile

    Mar 17, 2013 5:19 PM GMT
    riddler78 said
    The problem given the perpetual bailout situation in much of Europe where the underlying issues are never addressed is who is to say that this is the last of it? If it really were a one time exceptional case, then fine... but only the insane would think that it is. Thus expect there to be significant withdrawals both in Cyprus and elsewhere.


    I cannot think of another Euro zone country where half its bank deposits comprise laundered Russian funds or anything even similar. Of course it could happen elsewhere, but it is very unlikely. Once everyone in Cyprus realizes they are going to get hit with the levy, regardless of what they do with their existing deposits, the withdrawals will probably ease. In the great scheme of the Euro, Cyprus is a pretty insignificant player.
  • Posted by a hidden member.
    Log in to view his profile

    Mar 17, 2013 5:25 PM GMT
    Ex_Mil8 said
    riddler78 said
    The problem given the perpetual bailout situation in much of Europe where the underlying issues are never addressed is who is to say that this is the last of it? If it really were a one time exceptional case, then fine... but only the insane would think that it is. Thus expect there to be significant withdrawals both in Cyprus and elsewhere.


    I cannot think of another Euro zone country where half its bank deposits comprise laundered Russian funds or anything even similar. Of course it could happen elsewhere, but it is very unlikely. Once everyone in Cyprus realizes they are going to get hit with the levy, regardless of what they do with their existing deposits, the withdrawals will probably ease. In the great scheme of the Euro, Cyprus is a pretty insignificant player.


    You'd have to make the case though that this solution is specific and entirely independent. You can make the case that Russian funds are being targeted - but that's a pretty fine line you're walking (since everyone is being hit - and they probably can't come out publicly to say as much). Further you're penalizing the savers rather than the the people who are spending the money - which from a policy standpoint is also insane.

    Finally, who is to say that since they've done it once, they won't do it again? Either in Cyprus or elsewhere? Why is it very unlikely - particularly given how financially shaky other European stats are particularly the PIIGS which are currently still in negotiations with the EU for the next bailout? It's one less reason to trust your banks to hold your cash.
  • Posted by a hidden member.
    Log in to view his profile

    Mar 17, 2013 5:44 PM GMT
    http://www.cnbc.com/id/100560290

    In a move that could set off new fears of contagion across the euro zone, anxious depositors drained cash from automated teller machines in Cyprus on Saturday, hours after European officials in Brussels required that part of a new 10 billion euro bailout be paid for directly from the bank accounts of ordinary savers.

    The move — a first in the three-year-old European financial crisis — raised questions about whether bank runs could be set off elsewhere in the euro zone. Jeroen Dijsselbloem, the president of the group of euro area ministers, declined early Saturday to rule out taxes on depositors in countries beyond Cyprus, although he said such a measure was not currently being considered.
  • Posted by a hidden member.
    Log in to view his profile

    Mar 17, 2013 7:22 PM GMT
    I think we get it that nothing would please Riddler more than to see the European economy implode and the continent descend into anarchy.
  • Posted by a hidden member.
    Log in to view his profile

    Mar 18, 2013 8:31 PM GMT
    Ex_Mil8 saidI think we get it that nothing would please Riddler more than to see the European economy implode and the continent descend into anarchy.



    No kidding.

    What's interesting is this: if Cyprus says no to the bailout, then there's no haircut for depositors. Cyprus has a nice shiny new right-wing christian conservative party in charge. What are they saying about this? Uh oh....

    http://www.independent.co.uk/news/world/europe/frantic-day-ahead-as-eu-tells-cyprus-it-can-rethink-controversial-bailout-terms-as-key-vote-postponed-8538212.html

  • Posted by a hidden member.
    Log in to view his profile

    Mar 19, 2013 2:13 PM GMT
    Ex_Mil8 saidI think we get it that nothing would please Riddler more than to see the European economy implode and the continent descend into anarchy.


    Are you suggesting that this was the only option?
  • Posted by a hidden member.
    Log in to view his profile

    Mar 19, 2013 2:14 PM GMT
    http://news.investors.com/ibd-editorials/031813-648417-expropriating-cyprus-private-insured-deposits-is-eu-overreach.htm

    arkets tumbled after Cyprus and the EU said they might tax private bank accounts to pay for a bailout. Arbitrary property grabs are a new low and a bad precedent in this crisis. Worse still, it can happen here.

    As bad as tumbling markets around the world are, they seem to be the only signal strong enough to catch the attention of Europe's otherwise unaccountable bureaucrats who have long since learned to ignore street riots.

    As stocks fell from Tokyo to New York, Europe's leaders are scrambling to say they had nothing to do with the cause — the shutdown of all Cyprus banks and ATMs for at least three days and the expropriation of a large chunk of each now-captive account, as a "tax" to pay for Cyprus' $13 billion EU bailout, Europe's fifth.
  • Posted by a hidden member.
    Log in to view his profile

    Mar 19, 2013 2:18 PM GMT
    The Economist calls it "an unnecessarily risky move"

    http://www.economist.com/blogs/freeexchange/2013/03/euro-crisis
  • conservativej...

    Posts: 2465

    Mar 19, 2013 2:51 PM GMT
    There is an alternative. The Cypriot Parliment will have the final say as to whether that alternative, no bailout, is chosen.
  • Posted by a hidden member.
    Log in to view his profile

    Mar 19, 2013 3:16 PM GMT
    How easy it would be to cap all the Cyprus banks' rates (so they can't pass what I'm about to suggest on to the account holder) and then tax the banks' earnings for this bailout payback portion. There's no need to harm the depositor, who I imagine is already paying taxes on interest earned as well as pre-deposit income tax.
  • Posted by a hidden member.
    Log in to view his profile

    Mar 19, 2013 11:59 PM GMT
    Not to mention the fact it voids the deposit insurance.

    http://finance.fortune.cnn.com/2013/03/19/cyprus-bank-run/

    "Bank run expert: Cyprus' plan was 'absurd' ... When a bailout is worse than the illness."
  • conservativej...

    Posts: 2465

    Mar 20, 2013 12:22 PM GMT
    The Cypriot Parliment has decided. No deal.

    Courage in the face of diaster can be of value to the wise, but spell the end of the idiot.
  • Posted by a hidden member.
    Log in to view his profile

    Mar 23, 2013 4:41 PM GMT
    http://www.reuters.com/article/2013/03/23/us-cyprus-parliament-idUSBRE92G03I20130323

    Cyprus said on Saturday it was looking at seizing a quarter of the value of big deposits at its largest bank as it races to raise the funds for a bailout from the European Union and avert financial collapse.

    Finance Minister Michael Sarris said "significant progress" had been made in talks in Nicosia with officials from the European Union, European Central Bank and International Monetary Fund.

    He confirmed discussions were centered on a possible levy of around 25 percent on holdings of over 100,000 euros at Bank of Cyprus, and expressed hope that a package could be ready by the end of the day for approval by parliament.
  • Posted by a hidden member.
    Log in to view his profile

    Mar 25, 2013 1:26 AM GMT
    http://www.thedailybeast.com/articles/2013/03/24/new-deal-for-cyprus-bank-run-to-follow.html

    There's a deal in Cyprus, according to the New York Times, leaving the insured small depositors untouched and seizing a substantial portion of larger accounts:

    A one-time levy of 20 percent would be placed on uninsured deposits at one of the nation’s biggest banks, the Bank of Cyprus, to help raise 5.8 billion euros demanded by the lenders to secure a 10 billion euro, or $12.9 billion, lifeline. A separate tax of 4 percent would be assessed on uninsured deposits at all other banks, including the 26 foreign banks that operate in Cyprus.

    An agreement was still far off, though, as Cyprus’s lenders left for the night without reaching an accord. The proposal still requires approval by the Cypriot Parliament and by the European Central Bank, International Monetary Fund and European Union leaders. Finance ministers from the 17 euro zone countries have scheduled an emergency meeting at 6 p.m. Sunday in Brussels.

    Under the plan, savings under 100,000 euros would not be touched — a rollback after a controversial plan last week to tax insured deposits was rejected by Cyprus’s Parliament, amid outrage among ordinary savers and widespread concern that a precedent had been set for governments anywhere to tap insured bank savings in times of a national emergency.

    Cypriot officials on Saturday also pulled back on a plan to raise billions of additional euros by nationalizing state-owned pension funds, after Germany, whose political and financial clout dominates euro zone policy, had indicated it opposes the move.

    Cyprus’s president, Nicos Anastasiades, was meeting Saturday night with political parties to explain the plan. He was scheduled to fly to Brussels on Sunday.

    Cyprus’s finance minister, Michalis Sarris, said on Saturday that there had been “significant progress toward reaching an agreement” with European officials on raising money for a bailout.


    The deal still has to pass the Cypriot parliament, the IMF, the EU, and various European governments. But the deal has obvious appeal: it's mostly paid for by Russian nationals. So while I wouldn't call the need for approvals just a formality, it seems likely to get the rubberstamp from the relevant governments.
  • Posted by a hidden member.
    Log in to view his profile

    Mar 25, 2013 2:07 AM GMT
    Tonight's deal is certainly better than bankruptcy for Cyprus, which would have left depositors with nothing. The Russians won't be happy (but then they rarely are).
  • Posted by a hidden member.
    Log in to view his profile

    Mar 25, 2013 2:24 PM GMT
    Ex_Mil8 saidTonight's deal is certainly better than bankruptcy for Cyprus, which would have left depositors with nothing. The Russians won't be happy (but then they rarely are).


    Now we just see if it gets approved and there is a bank run. This is far far from just being about the Russians.
  • Posted by a hidden member.
    Log in to view his profile

    Mar 25, 2013 9:12 PM GMT
    http://www.huffingtonpost.com/2013/03/25/cyprus-bailout-deal_n_2947520.html?utm_hp_ref=business
  • Nayro

    Posts: 1825

    Mar 25, 2013 11:17 PM GMT
    Ex_Mil8 saidTonight's deal is certainly better than bankruptcy for Cyprus, which would have left depositors with nothing. The Russians won't be happy (but then they rarely are).



    Russia said its gonna punish the EU for what they did to Russian savings on Cyprus.. :/
  • Posted by a hidden member.
    Log in to view his profile

    Mar 25, 2013 11:19 PM GMT
    Daelin said
    Ex_Mil8 saidTonight's deal is certainly better than bankruptcy for Cyprus, which would have left depositors with nothing. The Russians won't be happy (but then they rarely are).



    Russia said its gonna punish the EU for what they did to Russian savings on Cyprus.. :/


    Forget just the Russians... if you were a large depositor, would you want to keep your cash anywhere in the EU?
  • Nayro

    Posts: 1825

    Mar 25, 2013 11:22 PM GMT
    Cyprus was the place to store money though. Good interest. But its all gone.
  • Posted by a hidden member.
    Log in to view his profile

    Mar 26, 2013 1:12 PM GMT
    http://www.businessinsider.com/nomura-on-dijsselbloem-and-other-post-cyprus-mistakes-2013-3

    Regarding how to regain control, at the risk of sounding repetitive, we would like to stress the importance of a number of conditions that need to be met to restore confidence in depositors following bank runs:

    1) eradicate doubts that losses on deposits will occur by giving the impression that 100% of deposits are safe and cash is safer in banks than under the mattress;

    2) the provision of a credible regime shifting policy response; and

    3) that policy makers speak in unison. Even more importantly, we found that size is not the main driver and that a small shock can have a significant impact on the rest of the system, as illustrated by bank runs in the US during 1932 and 1933.
  • Posted by a hidden member.
    Log in to view his profile

    Mar 26, 2013 1:32 PM GMT
    It's mindboggling how badly the Europeans screwed this up.

    http://www.zerohedge.com/news/2013-03-25/have-russians-already-quietly-withdrawn-all-their-cash-cyprus

    So while one could not withdraw from Bank of Cyprus or Laiki, one could withdraw without limitations from subsidiary and OpCo banks, and other affiliates?

    Just brilliant.

    And if there was any doubt that the entire process of destroying one entire nation was simply to punish Cyprus, it can be completely cleared away now