Cypriot bank deposits hit in €10bn bailout
Savers bear brunt of unprecedented Cyprus bailout
TL;DR version: Bank accounts with over 100K euro got a 10% haircur, while accounts with under 100K euro ~6% haircut. A 50% of the account holders are foreign investors, mainly Russians.
What will be the fallout in the rest of Europe from this (undoubtedly) bold measure?
The articles are unclear on one point (unless I missed it) : Are they taking money NOW, or levying this on new deposits, starting Tuesday?
It sounded to me like they’re taking the now* which is why they closed down all the branches on Saturday and made sure no one could access their money via ATM over the weekend.
*“now” meaning Tuesday morning right before the start of the banking day.
I think we can expect this to expand and Greece to be abandoned in droves.
I don’t think I’ve ever heard of a country where the government started “nationalizing” private bank accounts that didn’t quickly become a place people are exodusing from and cracking jokes about.
At a minimum it’s something new to try. And it should accelerate either the salvation or destruction of the Cyprian economy.
If they have any sense, anyone with money in a bank in any country that looks like it will try this will pull it all out and put it somewhere where the government can’t get at it. Even if they just hide it under the bed, it will be a better investment than losing 10%.
The article says it seems to have been aimed at foreign savers, mostly Russians. Which sends a very clear message - if you have any money, don’t put it in Cyprus!
Do they really want to trigger a run on their banks? I can’t imagine any other outcome. If the message is “don’t save, spend”, well, maybe they will get that, but I don’t know if insufficient consumer spending is a big problem behind the Cypriot economic disaster-in-the-making.
Regards,
Shodan
I’m flabbergasted. I didn’t know such a thing was possible.
I wonder if this is a dry run for an attempt to compel the Greeks to do the same, or perhaps a warning shot?
Talking of warning shots, it can often be the little things that precipitate disasters. I’m reminded of a certain Archduke in Sarajevo. It’ll be fascinating to see how this plays out.
10% is better than nothing, I suppose.
The matter is slightly more complicated than just a deposit haircut.
However, I’ll Google it a bit to find out more details on exact structure of Cyprus banks exposure to Greece - both in terms of who is on the other side of that exposure and what types of things exposure is financing.
This is Europe and old political games are still being played out - the tools are different 
DOH! I meant Cyprus, not Greece.:smack:
Does anyone know why all these Russians were putting their money in Cyprian bank accounts? Either way, I would imagine the impact will probably not be as punitive as it should be.
Cyprus was considered a “safe haven” by shady investors. They had some pretty lax laws regarding company taxation and regulation. This attracted all kinds of offshore companies, money laundering schemes and the like.
In short, Cyprus was kinda like the Cayman Islands of Europe.
And some relevant links:
Seems insane. The amount of money raised will be relatively trivial, while the damage to Euro-zone banks seems like it could be huge.
I would absolutely lose my shit if this happened to my bank. There’s no fucking way I’d ever put money in a bank ever again.
I can’t even believe this is a thing. Completely outrageous.
It looks like the ones hit will get shares in the bank. So, in order to pacify them, they get shares in a bank that is in such bad shape they’re subject to outright theft?
Wow. Holy shit.
It has long been very known that much of the cypriote bank deposits was Russian mafia or illegal russian monies. That is why, for the EU money, there is the penalties. If it was american money going to banks well known to have a majority of the deposits from foreign mafias, I think the discourse would be different. This is not any preparation for greece it is a thing specific to cyprus, which now is paying for its blind eye turned on the bad and dirty money that flowed through their banks.
I do not think that informed people will look at this as damage to euro zone banks.
Americans are being shocked because they are reading only a headline.
In this case, I’d suggest a quick look over at slate, where you will find:
[QUOTE=Matthew Yglesias]
What happened, essentially, is that the Cypriot banking system needs a bailout. But the Cypriot banking system is large relative to the (small) size of the Cypriot economy. So a big government bailout would just create a public sector debt crisis. … The most straightforward way to reduce the cost of a bank bailout is to simply not give people 100% of what they’re owed.
[/QUOTE]
They’ve implemented a wealth tax on deposits because the alternative is to admit that they don’t have access to the funds to repay 100% of the deposits in the event of a default. Either way, the result is the same in the event of a bank failure. A creditor at an insolvent institution would be paid out of the bank’s assets, where possible, then with government aide up to 90% of their account total, taking a 10% loss on deposits made at a failed bank.
For institutions that don’t fail, however, deposit holders will simply find 6-10% of their account balance due as a tax, likely deducted automatically. This will probably have some serious negative long term repercussions, as I think most people in the thread are already discussing.
It damages confidence and trust in them.
An interesting Forbes article on how it sets a precedent invalidating deposit insurance.
No; it’s a lot more than just the headlines that make this “shocking”; people are both surprised and enraged by this, and certainly not just in America. Rather more in Europe, given that this has nothing to do with America.
They get shares in banks that I expect are going to be essentially destroyed by this. I fully expect that most of their depositors will withdraw whatever they have left and deposit it elsewhere. In foreign banks, or even just under their beds. After all, it’s safer there than it is in a bank where 10% of it may vanish suddenly; I expect there’s quite a few people in Cyprus right now who wished they just kept their saving in a box and not a bank.
It does demonstrate, if further demonstration were needed, what a dangerous idea the European monetary union was. Ordinarily, currency devaluation is the straightforward way to deal with such problems. Thailand’s devaluation 16 years ago was a response to influx of foreign money.
But the Cyprus crisis may have little relationship to investment in Cyprus. Doesn’t most of the affected money belong to Russian money launderers? I don’t have the full story, but horrifying as “bank deposit haircut” seems a priori, might it have been a sound way to deal with a very peculiar situation?