Cypriots Stunned by Forced Savings Cuts

[Thailandnotes]

Re: Cypriots Stunned by Forced Savings Cuts

“Cyprus had become dependent on the ability of its many banks to offer clients around the world high-yielding, lightly taxed savings accounts. The strategy was so successful that overall bank deposits had grown to more than three times the size of the economy.”

I would change that to “extremely high-yielding, lightly taxed savings accounts.” Why would this be allowed within countries using the Euro?

[GRG55]

Re: Cypriots Stunned by Forced Savings Cuts

“Cyprus had become dependent on the ability of its many banks to offer clients around the world high-yielding, lightly taxed savings accounts. The strategy was so successful that overall bank deposits had grown to more than three times the size of the economy.”

I would change that to “extremely high-yielding, lightly taxed savings accounts.” Why would this be allowed within countries using the Euro?

Because there isn't a Euro wide banking regulator...

[BadJuju]

Re: Cypriots Stunned by Forced Savings Cuts

I feel like taking out my credit cards and loading up on gold with them.

[Thailandnotes]

Re: Cypriots Stunned by Forced Savings Cuts

Because there isn't a Euro wide banking regulator...

I understand that, but there is a European Banking Authority which supposedly does have the authority to overrule national bank regulators under certain circumstances. As soon as Greek debt was written down Brussels knew Cypress would be facing this. The whole thing seems way too sloppy.

[Chris Coles]

Re: Cypriots Stunned by Forced Savings Cuts

And some lucid thoughts by Edward Harrison:

http://www.creditwritedowns.com/2013...in-cyprus.html

Thanks for that Chomsky, very lucid indeed.

[jpatter666]

Re: Cypriots Stunned by Forced Savings Cuts

It's worse than a crime, it's a blunder.

[thriftyandboringinohio]

Re: Cypriots Stunned by Forced Savings Cuts

It's worse than a crime, it's a blunder.

"Blunder" is what we call a trial balloon after it goes off badly.

[shiny!]

Re: Cypriots Stunned by Forced Savings Cuts

Cypriot banks to remain closed until Thursday.

[shiny!]

Re: Cypriots Stunned by Forced Savings Cuts

What would happen if Cyprus followed Iceland's example?

[ProdigyofZen]

Re: Cypriots Stunned ..ngs Cuts

From The Economist:

The Cyprus bail-out

Unfair, short-sighted and self-defeating
Mar 16th 2013, 14:54 by A.P

IT IS not a fudge, but it is still a failure. The euro zone’s bail-out of Cyprus, which was sealed in the early hours of Saturday, did get the bill for creditor countries down from €17 billion to €10 billion, as had been rumoured. But the way it did so was somewhat unexpected.

A one-off 9.9% levy will be imposed on all deposits over the insurance threshold of €100,000 before banks reopen after a bank holiday on Monday. That idea had been in the air for a while, not least because a lot of those uninsured deposits came from outside Cyprus, and from Russia in particular. The politics of saving wealthy Russians with money loaned by thrifty Germans were always going to be tricky.

What had not been anticipated was a 6.75% loss for savers with deposits in Cypriot banks below the insurance ceiling. Cypriots woke up this morning to find bank branches closed to them. By the time they will be able to get at their money, it will be too late. The offer of equity in banks to replace the value of their savings is meant to be a balm but it’s not a choice they would have made. Why this decision was taken is not yet clear. The most plausible explanation is that the Cypriot government itself preferred to spread the pain rather than wipe out non-resident depositors and jeopardise its long-term prospects as an offshore financial centre for Russian and other money.

Whatever the rationale, it is a mistake for three reasons. The first error is to reawaken contagion risk elsewhere in the euro zone...

...The second error is one of equity. There is an argument to be made over the principles of bailing in uninsured depositors. And there is a case for hitting everyone in Cypriot banks before any taxpayer in another country. But there is no moral imperative for whacking Cypriot widows and leaving senior bank bondholders untouched, as appears to be the case here; or not imposing any losses on sovereign-debt investors in Cyprus; or protecting depositors in the Greek operations of Cypriot banks, as has also happened. The euro zone may cloak this bail-out in the language of fairness but it is a highly selective treatment...

... The final error is strategic. The Cypriot deal has no coherence in the larger context. The euro crisis has been in abeyance for a few months, thanks largely to the readiness of the European Central Bank to intervene to help struggling countries. The ECB’s price for helping countries is to insist they go into a bail-out programme. The political price of going into a programme has just gone up, so the ECB’s safety net looks a little thinner...The bail-out appears to move Europe further away from the institutional reforms that are needed to resolve the crisis once and for all...

...Other than that, it is a really good deal.

This is what happens to politically insignificant nations that are part of the IMS. They become guinea pigs which is exactly what Cypriots are now.

I don't quite see bank runs but it does set a precedent going forward.

Funny because I was having breakfast with a new macro fund manager who is an acquitance last Tuesday and I stated that Cyprus would be bailed out.

He said it would never happen as they only owe 10 billion etc etc.

That was either sagacious of me or complete luck on the timing.

I pick the latter.

I wonder what firm or person owns large amounts of sovereign debt or senior bank debt in Cyprus?

[shiny!]

Re: Cypriots Stunned ..ngs Cuts

This is what happens to politically insignificant nations that are part of the IMS. They become guinea pigs which is exactly what Cypriots are now.

I don't quite see bank runs but it does set a precedent going forward.

Funny because I was having breakfast with a new macro fund manager who is an acquitance last Tuesday and I stated that Cyprus would be bailed out.

He said it would never happen as they only owe 10 billion etc etc.

That was either sagacious of me or complete luck on the timing.

I pick the latter.

Yeah, but don't tell him that! ;-)

[ProdigyofZen]

Re: Cypriots Stunned ..ngs Cuts

Yeah, but don't tell him that! ;-)

I emailed him on Saturday when the news broke.

He hasn't responded......

[mmr]

Re: Cypriots Stunned by Forced Savings Cuts

Icelandic banks were structured with separate foreign and domestic subsidiaries; basically, it was possible for Iceland to default on foreigners with deposits in the offshore subsidiaries without directly harming domestic depositors.

My understanding is that the Cypriot banks have both local and foreign depositors in the same entities; it's much more difficult to default on the "bad" foreigners without also affecting the "good" domestic depositors. (Not to say that it won't be tried.)

[charliebrown]

Re: Cypriots Stunned ..ngs Cuts

Being of the man on the street variety I do see a bank run.

Given the same situation, say a 6% haircut on my bank deposit, I am not going to use a bank as a long term large savings vehicle anymore. Suppose I am an oldy and my life savings were in a bank, saving for my child's tuition, down payment on a house, a new car? Now I am out somewhere between 2K and 20K. Now I may not yank every nickel out of the bank, but I'm going to diversify my savings. Maybe some P.M. maybe short gvt bonds, maybe cash in a matress. I don't know if the average cypress person can walk into a bank and with out a lot of hassle buy german 90 day bonds. The people in Greece must be nervous too, and this goes both ways. If there is no panic in Cypress, I may think they will try it in Greece.

[ProdigyofZen]

Re: Cypriots Stunned ..ngs Cuts

Being of the man on the street variety I do see a bank run.

Given the same situation, say a 6% haircut on my bank deposit, I am not going to use a bank as a long term large savings vehicle anymore. Suppose I am an oldy and my life savings were in a bank, saving for my child's tuition, down payment on a house, a new car? Now I am out somewhere between 2K and 20K. Now I may not yank every nickel out of the bank, but I'm going to diversify my savings. Maybe some P.M. maybe short gvt bonds, maybe cash in a matress. I don't know if the average cypress person can walk into a bank and with out a lot of hassle buy german 90 day bonds. The people in Greece must be nervous too, and this goes both ways. If there is no panic in Cypress, I may think they will try it in Greece.

Sorry CB, I was referring to a Euro wide bank run (should have clarified). You are already seeing it happen in Cyprus which is to be expected but the first thing they did was extract the capital from the accounts over the weekend and then shut all the banks.

Will an actual bank run lead to anything significant in Cyprus? I am not so sure.