Skip to main content

View Diary: Bank Run in Cyprus, Will it Spread to Southern Europe? (322 comments)

Comment Preferences

  •  these banks made bad choices with their (2+ / 0-)
    Recommended by:
    shrike, marsanges

    Investments (putting money in risky european banks), and now are severely undercapitalized. The two choices are to give them money in th form of an equity investment or to extinguish liabilities such that their capital levels are once again sufficient. While i is true that there is a moral hazard in erasing deposits (it may create a permanent sense of fear), there is also moral hazard in bailing the bank out through cash infusion (namely that they and every other bank will think that no matter what they do, somebody with deep pockets will rescue them).

    Since depositors are one of the primary constituencies helped by a rescue, it makes some sense that they should participate in the other side of it (though perhaps not for the entire nut). These depositors are having 10% of their cash converted to equity in the bank, making it risky for them to flee en masse (if the bank fails, their equity is gone, in the least). The message sent by this to banks is that they better do a better job of managing their investments, and the message to the public is to not blindly put money in banks without reqard to that bank's balance sheet quality.

    •  Yikes (16+ / 0-)

      If the message to the public is such, the Europeans are basically telling everyone who lives in a smaller Eurozone country to go to their banks, right now, and withdraw all their money.

      If I lived in Cyprus, I would do that, first thing on Monday morning.

      And I expect that every bank in Nicosia will have a line around the block tomorrow, with angry customers making withdrawals, and their online banking sites will be down.

      "I'll believe that corporations are people when I see Rick Perry execute one."

      by bink on Sun Mar 17, 2013 at 05:58:39 AM PDT

      [ Parent ]

    •  Wasn't the ECB begging everyone,... (4+ / 0-)

      ...banks, investors, anyone, to support Greek banks and economy?  So the ECB wouldn't have to?  And now Germans bankers are punishing the depositors in banks who did what they were asked to do? What am I missing here?

      •  You think Cypriot depositors thought that (1+ / 0-)
        Recommended by:
        marsanges

        they were helping Greek banks by depositing their money in banks in Cyprus? If that is the case all this is saying is that such efforts were not enough. The banking situation in Southern Europe is so horrendous that we'd be lucky if simply wiping out 10% of deposits would solve the problem. I've read that some banks are ~40% undercapitalized, so I don't think this Cypriot experiment will work everywhere. But if it saves the financial system in Cyprus from going down, that is a very worthwhile benefit for all Cypriots. The thing is, someone has to pay for this calamity, and the sums are just too large to say it should be only the rich people or only corporations or the banks themselves (or even governments). It has got to be shared, and since depositors are a primary beneficiary, it makes sense to me that they should be one of the contributors to the solution.

        •  My phrasing was unclear. (2+ / 0-)
          Recommended by:
          dfarrah, ozsea1

          Depositors wouldn't have thought they were helping Greek banks maintain stability.  The Cypriot banks they deposited their funds in, however, may well have intended to comply with ECB entreaties.

          As for your comfort with the less well off paying for the benefit of not being screwed by the same people who are screwing them, well . . . .

        •  it won't be shared (3+ / 0-)

          Senior bondholder will be 'protected'.

          Re-read the diary.

          The "extreme wing" of the Democratic Party is the wing that is hell-bent on protecting the banks and credit card companies. ~ Kos

          by ozsea1 on Sun Mar 17, 2013 at 01:13:05 PM PDT

          [ Parent ]

        •  Cypriot pols could have targeted larger accts (2+ / 0-)
          Recommended by:
          dharmafarmer, nchristine

          Had Cypriot pols targeted deposits above 100k, at 15%, they could have spared all deposits under 100k.

          But Cypriot pols didn't.  They intentionally went after their own citizens, to ensure that Russian deposits could be hit at just 10%.

          Who's getting hit the worst?

          (i) A Russian depositor who's going to take a 10% hit on his 10M on proceeds from unlawful privatizations

          or

          (ii) A struggling Cypriot family who's taking a 7% hit on his 70k life savings.

          And some of you continue to defend the ill-fated Eurozone.

          This is what happens when 17 countries cede monetary sovereignty without a US of Europe.

          And this will continue to happen until

          (i) the southern countries become protectorates within a US of Europe, based in Berlin,

          or

          (ii) the Eurozone unwinds, and each country introduces its legacy currency.

          Learn about Centrist Economics, learn about Robert Rubin's Hamilton Project. www.hamiltonproject.org

          by PatriciaVa on Sun Mar 17, 2013 at 01:30:38 PM PDT

          [ Parent ]

        •  Depositors already contributed (0+ / 0-)

          You can be assured that one way or another the banks passed along the cost of the premiums for deposit insurance. To the extent that the government paid for the system, their taxes already covered it.

          Bank runs only aggravate problems.

          Freedom isn't free. Patriots pay taxes.

          by Dogs are fuzzy on Sun Mar 17, 2013 at 04:29:31 PM PDT

          [ Parent ]

      •  Can't plunder a bank (9+ / 0-)

        if it isn't full of money!

        Same thing with privatizing Social Security: It's the golden egg Wall Street has been eager to gorge on lo these many years.

        Dogs from the street can have all the desirable qualities that one could want from pet dogs. Most adopted stray dogs are usually humble and exceptionally faithful to their owners as if they are grateful for this kindness. -- H.M. Bhumibol Adulyadej

        by corvo on Sun Mar 17, 2013 at 06:41:56 AM PDT

        [ Parent ]

    •  no...the primary beneficiaries are those with (7+ / 0-)

      deposits above the insured level.  Depositors below that governmentally insured threshold would have suffered no loss from a bank failure.  Now, though, they are being taxed to cover the deposits of a bunch of Russian mobsters and oligarchs.

      From The Economist:

      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.

      http://www.economist.com/...

      Oregon: Sure...it's cold. But it's a damp cold.

      by Keith930 on Sun Mar 17, 2013 at 06:17:49 AM PDT

      [ Parent ]

      •  The Russian money laundering thing is a sideshow, (6+ / 0-)

        that is not why these banks are in trouble. The diary even says this:

        The banks in Cyprus failed because they took huge losses when the EU bailed out Greece, not because of anything done in Cyprus. Banks in Cyprus have taken large deposits from Russia, but alleged Russian money laundering activities have nothing to do with the bank failures.
        Nobody is "covering the deposits" of Russian mobsters. This is a part of the European banking crisis - the Cypriot banks unwisely invested in some of the riskiest banks in Europe, and through their losses there are now undercapitalized.
        •  Yes, the haircuts forced on Greek bondholders (2+ / 0-)
          Recommended by:
          doc2, nchristine

          began this.  It sounds like banks in Cyprus were some of those bondholders.

          This was not done to bail out bank shareholders in Cyprus as stated upthread.  They in fact will be severely diluted.

          "The way to see by faith is to shut the eye of reason." - Thomas Paine

          by shrike on Sun Mar 17, 2013 at 07:34:54 AM PDT

          [ Parent ]

        •  Indeed, the banks passed a stress test (0+ / 0-)

          less than two years ago.

          "To recognize error, to cut losses, to alter course, is the most repugnant option in government." Historian Barbara Tuchman

          by Publius2008 on Sun Mar 17, 2013 at 08:45:31 AM PDT

          [ Parent ]

    •  Yeah, I can just (1+ / 0-)
      Recommended by:
      nchristine

      see ordinary depositors poring over bank statements and investments to assess risk.  Especially since the credit rating agencies are oh so reliable.

      You have it backwords.  The decision makers at the banks benefitted from having depositors that provided the $$ for the bad investments resulting in undercapitalization.  One way or another, those decision makers need to pay the price - not the ordinary depositors.

      The banks have a stranglehold on the political process. Mike Whitney

      by dfarrah on Sun Mar 17, 2013 at 10:33:36 AM PDT

      [ Parent ]

    •  So you favor capital control...nice... (4+ / 0-)

      And your defense of this includes defense of forced servitude through this bullshit bank equity option.

      God, you sure do quack like a Republican.

      Adequate health care should be a LEGAL RIGHT in the U.S without begging or bankruptcy. Until it is, we should not dare call our society civilized.

      by Love Me Slender on Sun Mar 17, 2013 at 11:25:07 AM PDT

      [ Parent ]

      •  This is not a republican, or even a conservative (1+ / 0-)
        Recommended by:
        shrike

        action.

        •  Taking the meager means of the poor... (1+ / 0-)
          Recommended by:
          ozsea1

          ...isn't a Republican/conservative position?

          And here I thought I was the noob here...

          Adequate health care should be a LEGAL RIGHT in the U.S without begging or bankruptcy. Until it is, we should not dare call our society civilized.

          by Love Me Slender on Sun Mar 17, 2013 at 12:15:55 PM PDT

          [ Parent ]

          •  you don´t believe (0+ / 0-)

            that people who have moved their money to Cyprus to evade taxes at home are "poor" in any usual sense of the word, do you?

            Think before you talk.

            •  Try READING before you write... (3+ / 0-)
              Recommended by:
              BradyB, nchristine, Cliss

              We're talking about the people of Cyprus here, not the wealthy of this country looking for a tax safe haven. This theft will take place at the expense of the working poor, not the wealthy.

              Doc2 is arguing that everyone needs to pay a penalty to solve this problem. I am arguing against starving the working poor by stealing their money. If you can't follow the conversation instead of injecting your own irrelevant commentary, it would probably be best if you kept from poking your nose into the discussion.

              Adequate health care should be a LEGAL RIGHT in the U.S without begging or bankruptcy. Until it is, we should not dare call our society civilized.

              by Love Me Slender on Sun Mar 17, 2013 at 02:41:23 PM PDT

              [ Parent ]

            •  Just to be sure, you did see the 6.75% levy... (1+ / 0-)
              Recommended by:
              BradyB

              ...on working class accounts, did you not?

              I guess those working stiffs just need to "pay their fair share".

              Adequate health care should be a LEGAL RIGHT in the U.S without begging or bankruptcy. Until it is, we should not dare call our society civilized.

              by Love Me Slender on Sun Mar 17, 2013 at 02:47:26 PM PDT

              [ Parent ]

              •  So I take it (1+ / 0-)
                Recommended by:
                shrike

                that when a guaranteed level is exempt from the cut (I have seen today proposals ranging from 25000 to 100000 Euros as offcut) that you are fine with it?

                The money of the cypriote common folks is a very small part of the deposits. (And British pensionados don´t count there, neither as "common cypriotes" nor as "poor"). Part of being poor is that you dont have large sums of money in banks.

                Why should a German "working stiff" pay through their tax money for people that evaded taxation to Cyprus?

                •  What the hell does that matter? (0+ / 0-)

                  That "small" amount of stolen money means food for a poor family. Your collateral damage argument is repulsive...and regressive.

                  Adequate health care should be a LEGAL RIGHT in the U.S without begging or bankruptcy. Until it is, we should not dare call our society civilized.

                  by Love Me Slender on Sun Mar 17, 2013 at 03:39:05 PM PDT

                  [ Parent ]

            •  Who it affects (1+ / 0-)
              Recommended by:
              marsanges

              Native Cypriots with allegedly insured deposits under a hundred thousand Euros lose 6.75% of their life savings.

              Freedom isn't free. Patriots pay taxes.

              by Dogs are fuzzy on Sun Mar 17, 2013 at 04:34:31 PM PDT

              [ Parent ]

              •  Not quite (1+ / 0-)
                Recommended by:
                Jeffersonian Democrat

                Three details tend to be overlooked in this mess:

                (1) the insurance system insures the money in the bank at the time of the actual bank collapse. This collapse hasnt happened yet. It is seen coming however - therefore the government enacts a property tax on every deposit - which it has the authority to do - to help stave off the actual bank collapse.

                Yes that is a technicality, but even so it is incorrect to see this as invalidation of the deposit insurance.

                (2)
                The 6,75% arent completely gone, they are converted into equity. Someone who actually lives in the island has the hope to wait out the crisis and sell that equity later - for whatever it is then worth. Thats quite the risk for sure; but it isnt gone. (It would be a kind of grim joke if people now use this "equity" as a safety to take credits on).

                (3)
                If the bailout didnt go through, and the banks collapsed, with ensuing state bankruptcy (but full european legal guarantee of the insured amounts), people would be FAR harder hit. And especially those people living in-country. Capital parkers who inreality live in say St Petersburg might hate losing the capital but could get on with their lives. People who have only a cypriotic state pension to live off (and therefore have no 100K in the bank anyways!) can be far happier with the bailout than with its absence!  

                That all said, I dont like the absence of a lower limit. I would have found it far better to have 100K as a lower limit in this tax just because of the similarity to the guarantee insurance sum and the obvious relative innocence of the smallest depositors. I also have - for now - the expectation that some limit of that kind will still be inverted (this deal has to pass national parliaments after all).

                And, whether I like it or not, I am going to pay ... I´m European. It´s my taxes that are going to be used for this.

        •  ...and in exchange for bank equity too... (2+ / 0-)
          Recommended by:
          ozsea1, nchristine

          Cash for stock that is worthless unless people remain loyal and keep their funds in said bank.

          Yep...sure sounds progressive to me...

          You and I are soooo on opposite ends of this issue.

          Adequate health care should be a LEGAL RIGHT in the U.S without begging or bankruptcy. Until it is, we should not dare call our society civilized.

          by Love Me Slender on Sun Mar 17, 2013 at 12:18:38 PM PDT

          [ Parent ]

    •  Fundamentally bad message to send (0+ / 0-)

      "the message to the public is to not blindly put money in banks without reqard to that bank's balance sheet quality."

      The public has no good way to monitor that.

      Publicizing that a bank is in trouble does no good -- it just starts a run on the bank.

      This is a classic case of how government regulation can stabilize and even enable a market. People and businesses who know that their checking accounts will work are more likely to have checking accounts.

      Deposit insurance, backed up by government regulation to ensure that banksters don't take advantage of it (as in the 1980s US savings and loan crisis) has been proven to work.

      Freedom isn't free. Patriots pay taxes.

      by Dogs are fuzzy on Sun Mar 17, 2013 at 04:25:10 PM PDT

      [ Parent ]

Subscribe or Donate to support Daily Kos.

Click here for the mobile view of the site