The Bankwatch

Tracking the consumer evolution of financial services

Bank holdup EU style

Bank holdup EU style

This pic is all over Europe this morning.  With the introduction of a tax on deposits in Cyprus the EU opens a new floodgate and introduces a question about deposit insurance.  There are no exempt deposits in this tax, so even a deposit balance of 100 Euros will be 6.75~ euros lighter this morning.

As discussed by Wolfgang Münchau here this introduces the underpinnings of a classic bank run.  Deposit insurance is intended to remove risk of loss of average depositors up to a preset limit.  The 2008 crisis effectively removed that preset limit by guaranteeing everyone.  It was obvious to most that is not affordable in the long run.  Whether it is banks or General Motors we cannot afford to bail our everyone all the time.  We just run out of money eventually.

So now haircut time has begun in Cyprus;  as Wolfgang says:

The country is levying a tax of 6.75 per cent on deposits of up to €100,000, and a tax of 9.9 per cent above that threshold. Legally, this is a wealth tax. Economically, it is a haircut.

It is a slippery slope now to the next country bailout.


Written by Colin Henderson

March 18, 2013 at 08:35

Posted in Uncategorized

One Response

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  1. Cyprus Banks seem to be still offering 11% on 5 years savings.

    It was 19% a few years ago.

    Just like Ireland and Iceland bank wizz kids gone berserk.

    At least Gordon Brown protected bank savings consistantly 🙂

    The Scot Bicycle

    March 18, 2013 at 15:10

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