2013 March 19 Tuesday
Cyprus Parliament Rejects Depositor Haircut

The bankrupt Cyprus banks are headed for a crash. While the "bank holiday" has been extended to March 26 that's just a speculative number. The banks are bankrupt. If they reopen without a bailout a bank rush will drain them.

On the bright side: the bank stockholders and bond holders will lose some or all their money. My guess is the depositors will end up losing some as well. The banks do not have the money to pay them all their deposits back.

The continued bank holiday will cause the Cyprus economy to nose dive. What will local businesses do to keep buying and selling to each other? Some can switch to foreign bank accounts. Some can switch to trade of goods and services. But that's far less efficient. Probably a cheap time to vacation in Cyprus. My guess is the tourist industry is hurting. Certainly the shop, restaurant, and local hotel owners will welcome payments in cash, probably for discount. You might even be able to get cheaper bulk Cyprus olive oil by depositing into a foreign bank account.

Share |      By Randall Parker at 2013 March 19 09:02 PM 


Comments
Stephen said at March 19, 2013 11:52 PM:

Perhaps I'm wrong (my normal state of existence), but Cyprus uses the Euro, so I'd have thought that Cypriot businesses would just swap to a non-bankrupt international bank rather than a local Cypriot bank.

Also, there are usually deposit guarantees - in my neck of the woods the reserve bank guarantees the first $million for each depositor (not each account, just each depositor).

I say let the banks die. Let their shareholders lose their investment.

bbartlog said at March 20, 2013 6:32 AM:

It isn't even clear from the article whether it's actually the *banks* that need the bailout so much as the bondholders (who could also be banks of course, and might well be German banks). Of course, since they're operating in fractional reserve mode, I assume that the bank run that this tax will/would create will sink them in any case. Remarkably unmentioned is the possibility that they would take a hint from Iceland and just tell the bondholders to get lost.

DdR said at March 20, 2013 7:07 AM:

Umm, I don't mean to offend bbartlog, but I think you're confusing things: the Cypriot banks are in trouble, thereby directly impacting all secured and unsecured stakeholders in the *banks*. Depositors and unsecured bondholders will stand together in the claim line if the banks file for bankruptcy protection and will likely suffer a significant haircut.

Tangentially related is the fact that the Cyprus economy will swoon from its banks going bankrupt, greatly affecting Cyprus' ability to service its sovereign debt. European banks probably have some exposure to Cyprus, but even a complete write-off of Cypriot bonds won't cause any large bank to implode. This is why the offer from Germany is a much bitterer pill than the offer to Greece: Greek bankruptcy would likely cause a few European banks to implode, whereas a Cypriot bankruptcy would not.

bbartlog said at March 20, 2013 12:37 PM:

Yes, I see on further reading that you're right (not that that information is in *this* article) - looks like the Cypriot banks bet heavily on Greece, and lost. I thought at first that it was more or less a sovereign debt crisis with the banks as collateral damage, but that turns out not to be the case - more the other way around. All the more reason to let the banks go under.

Check it out said at March 20, 2013 4:01 PM:

Let them crash. However, I think they won't let it happen, just as they won't let the U.S. or any other country really crash, as they should.

Randall Parker said at March 20, 2013 9:11 PM:

Stephen,

According to articles I've read lots of Euro banks (or governments) have residency requirements. You've got to have an address in their country to open an account at their bank. I do not know how hard it is for a Cypriot to open a bank account insured by the British government or the US government or the German government.

Curiously, if you deposit 300,000 euro in a Latvian bank you can get a Latvian residency permit. That gives one the ability to live anywhere in the Euro currency area. The deposit requirements in the Greek part of Cyprus are much higher to get Cyprus residency.

AMac said at March 21, 2013 9:20 AM:

In the prior post, Parapundit noted, "In Europe the first 100,000 of bank deposits are, in theory, covered by depositer insurance." That made me wonder who the guarantor is. Perhaps the ECB or Berlin is on the hook?

Well, no. Turns out that Cyprus' Deposit Protection Scheme is run by the Bank of Cyprus, and funded by premiums from Cypriot banks. The odds that the DPS would make depositors whole in the event of multiple major bank failures must be nil.

On the elites' nullification of deposit insurance, Robert Tracinski writes,

Combine this news [from Cyprus] with Gretchen Morgenson's summary of a Senate inquiry into huge trading losses at JPMorgan Chase, one of our too-big-to-fail megabanks. The bottom line is that big banks are still too big to fail and they are still taking undeclared risks backed by taxpayer money. Across the board, the general sense is that the system is failing and government leaders aren't really trying to reform it. They're just trying to restore the status quo ante, setting us up for a whole new round of financial crisis.

Check it out said at March 21, 2013 3:57 PM:

"The bottom line is that big banks are still too big to fail and they are still taking undeclared risks backed by taxpayer money. Across the board, the general sense is that the system is failing and government leaders aren't really trying to reform it. They're just trying to restore the status quo ante, setting us up for a whole new round of financial crisis."

Finally someone says it like it is. That is the absolutely truth from AMac. The problem is that we've had this kind of crap since 2008 or earlier and we still do nothing about it.

God damn it! What kind of f***en cowards are we, that we let the one percent parasite pricks rule over us as they will. Maybe in the near future all those fat corporate owners and bankers will want to bring back a neo-feudalism and prehaps even claim the prima nocte from us, again.

The more enraged I become the less I understand how Americans can be such dull castrated cowards to just put an end to this rich mother******s.

I respectfully salute George Carlin, Noam Chomsky, Aaron Russo and a few other ordinary citizens who have the balls -or ovaries- to stand up and spit back some of the shit the powerful make us eat. Your fellow citizen is losing his house, his car and living in tent cities, while he's made to feel as a criminal. Your neighbor's son cannot go to college, while there are no jobs out there.

Gosh we've become so fu**** cowardly! It's incredible.

Randall Parker said at March 21, 2013 8:20 PM:

AMac,

As I've previously written, "too big to fail" lowers the borrowing cost of the big banks at the expense of their competitors and the public. I'm starting to agree with those who call them Banksters.

Check it out,

You aren't an American citizen, right? So in your country what do you think of your leaders, your elite, the wealthiest citizen of your country?

Check said at March 22, 2013 3:44 PM:

I am an American citizen; in fact I have dual citizenship -if you must know- so I'm not speaking trash about U.S. elites only. The wealthiest citizens of "my country" -since that's how you call the country I now live in- are also a bunch of parasite pricks. I am talking about politicians, corporate owners and religious ministers of any country. Therefore, I also think that people in other countries who put up with their crap are just as cowardly. Perhaps it makes you feel better that there are also loads of cowards in other countries too, and I aknowlegde it.

Don't get confussed Randall. I am not talking about Americans. I'm talkig about the modern cowardly men whatever nationality they may be. See I have the idea that men -and women- of 2 or 3 hundred years ago wouldn't have put up with the crap you're putting up with. If you think I'm being subjective, just look back at history and think about the American Independence, just to give you an example. Think about all those wonderful brave men -and women- that with their lives gave you the country that is now being peed all over, by also American citizens, as you watch.

See Randall, unlike you, I've cured myself of the patriotism that still afflicts you, so I see no reason to defend a citizen of "my country" if he's a parasite or a criminal, just as I have no reason to despise any foreign citizen just because he's a foreigner.

At this point perhaps you'll ask me what I have done. Well, this is not the place to show off, but I can tell you I've done and am still doing my part day by day. It's a part that can only be played by men, not citizens. It's a part that has required some guts and for me to put myself on the line in a country far more dangerous. Be assured that when I get home in the evening, it is precisely this attitude that enables me to come to my woman and make love to her whole and with my head up high. How are you playing your part? as a citizen or as a man?

Snickers said at March 23, 2013 11:03 AM:

Check said at March 22, 2013 3:44 PM:

Hysterical comment.


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