Skip to comments.Cyprus bailout threatens international bank runs.
Posted on 03/17/2013 7:10:27 AM PDT by Mr Ramsbotham
In the wee hours of the night, the Eurogroup of eurozone finance ministers agreed to bail out Cyprus, after a year of negotiations. Cyprus needed a 17 billion euro bailout loan for its banking system, but the Eurogroup was only willing to come up with about 10 billion euros, so the difference had to be made up by penalizing depositors: 9.9% on deposits above 100,000 euros, and 6.75% on smaller deposits.
(Excerpt) Read more at breitbart.com ...
This could be a very bad thing. Some excuses that I read are trying to justify this theft. One such excuse is that the Russian mob is laundering money down there and they a re taking a bigger hit. They think that taking laundered money makes it OK. The bank runs are happening now. This could be the start of the end.
Very interesting. Taking a cut of bank depositor’s accounts to pay for poor decisions on the part of bankers. Awesome idea.
There will definitely be bank runs. However, according other articles, their Parliament has to pass it and that’s not a given — especially now that they know of the immediate worldwide outrage.
Maybe the only thing stupider than deposit insurance, is deposit seizure. It is my understanding, from the little information provided, that Cypriot banks were insolvent, short of assets, by 17 billion Euros, and the shortfall is being made up 10-7, 10 billion from the “Eurozone ministers” (i.e., German taxpayers) and 7 billion form depositors.
This is hardly a seizure, it is a gift, just a smaller gift than the depositors wanted. If you put your money in an insolvent bank, you should consider yourself lucky to get anything at all.
No thank, I’ll put my money into lotto cards.
Ah here we go:
An official says Cyprus’ parliament had postponed the debate and vote on the controversial levy on all bank deposits that the country’s creditors demanded in exchange for 10 billion ($13 billion) in rescue money.
Parliamentary official Antonis Koutalianos said the vote that was scheduled for Sunday afternoon has been pushed back to Monday, but the exact hour of the vote has yet to be fixed.
You think this could spread like wild fire everywhere now that Cypress was the Guinna pig? Maybe other country’s will try such things depending on how the depositors react? It is funny that the us debt is around $16 trillion and our 401k and retirement funds are around the same amount?
Perhaps trying to allay the depositors' concerns in order to buy enough time to push the thing through stealthily.
I object to the term “seized”. People, many of them not even Cypriots, put their money into Cypriot banks. In the aggregate, the banks were insolvent. Depositors are getting a haircut, but not nearly as big a haircut as they deserve. The difference is being made up by “Eurozone ministers”, with other people’s money.
No government is taking anybody’s money. This is like a bankruptcy, with creditors (in this case) getting over $0.90 cents on the dollar, with about $0.14 cents of the $0.90 cents coming out of the pockets of Eurozone taxpayers.
The Bailey Savings & Loan of Bedford Falls, wasn’t insolvent, it was temporarily illiquid. Its deposits were backed by mortgages, not by bags of greenbacks in the vault. GM was insolvent, its debts were backed by future earning that were never going to be adequate, and it got bailed out with taxpayers’ money. The Cypriot depositeros are the IAWU in this little drama.
Any Cypriot who doesn’t immediately empty their bank accounts is a fool. If 6.67% or even 10% isn’t enough, do you think they would hesitate for a moment to take more?
Also, as soon as the bank run begins in earnest, the first thing will be to declare bank holidays. This means that even if someone has a ton of money in the bank, they cannot withdraw or even access it for who knows how long.
In the US, during the Great Depression, some bank holidays lasted from between 3 to 300 days.
BTW, during the American banking crisis of 2008, some banks were practically immune to the contagion. Mostly conservative, family owned or other closely held banks, turned up their collective noses at CMO’s being marketed by Fanny and Freddy. The bankers *knew* CMO’s were mackerel on ice, they smelled and they shined. The employees of limited liability corporations were driven by quarterly results, they really didn’t care where their institutions were when the music stopped, they had already pocketed their bonuses.
Bank Holiday declared
This is unlike the U.S. Great Depression, in so many ways, it is not comparable.
The bank holidays may well have done more harm than good, I agree, but during the Depression, the problem with most banks was liquidity, not solvency. The Cypriot banks are insolvent, not just illiquid. The shortfall is being made up by the taxpayers of the Eurozone.
Calling this a “seizure” of deposits is rank demagoguery. I would love to hear what Daniel Hannan has to say about this.
Seized is perfectly appropriate. The issue is one of trust. If depositors are told that deposit insurance guarantees their deposits and the the government lies about the solvency of the deposit insurance scheme then it’s not the depositors who should have their assets stolen, it’s the bankers who should be forced to make the system whole.
I didn’t see anything about deposit insurance in the article, which would be an entirely different issue. Are you claiming that other Eurozone governments issued guarantees to Cypriot depositors? When I was in the Army in Germany, I know that German banks did not have deposit insurance, and German banks did occasionally fail. Even in the good old USA, deposit insurance was only supposed to cover $200,000 smackers, after which you are on your own.
Failing banks are good for an economy when they remove the kind of moral hazard that lead to 2008 banking crisis.
This is getting ugly in a hurry. Two things that got my eye here are first that they have the gall to offer depositors *equity* in failing banks; and that Cyprus was a preferred offshore to Russian oligarchs, people it would be a very bad idea to cross.
Personally, I think it would be hilarious if some of the oligarchs put out contracts on some of those involved, both in Cyprus and elsewhere.
That was cheerful ;)
I would still love to hear Daniel Hannan on this.
This from a statement by the President of Cyprus as posted on ZeroHedge
The State would be obliged to compensate depositors in response to the obligation regarding guaranteed deposits. The capital required in such a case would amount to about 30 billion euros, which the State would be unable to pay.
In other words the government funded deposit insurance fund is insufficient to cover the cost of bank failure.
Could anyone, including the Russian oligarchs, have been laundering money in/through Cyprus w/o the Cypriot government knowing about it and just turning a blind eye in exchange for equity?