Raid on bank accounts in Cyprus

[MrsJREwing]

Nearly 10% of savings will be taxed from private individuals savings, to save the banks.

What is this treaty that allows governments to raid personal bank accounts protected by the deposit guarantee scheme?

I think there will now be a renogotiation and the amount taken from under 100,000 Euro accounts will be decreased and teh amount on above 100,000 Euros will be increased. The majority of those accounts (but not all) seem to belong to Russians.

They have tried a tactic to show that they are "fair" and would take money from everyone, but they will probably try and increase the amount they take from Russians and reduce the amount on everyone else.

That is not fair either, and we will have to see what Putin has to say about it.

I don't there is any such treaty, because of there were, why would the Cyprus government need the cash-grab to be ratified by parliament?

Flat bread I referred to it in my.posts, even mentioned the article. Do you remember the EU meeting where French PM blanked Cameron? Cameron didn't retify for UK, it was us abd CR only, the rest signed and now like Cyprus are under thumb screws.

When times got tough, the Icelanders dumped their Deposit Protection scheme (except for themselves) and the UK government compensated UK private depositors. Eventually, the UK government will probably be paid back a small proportion of what it paid out (but no interest) from the ruins of the Icelandic banks.

A knotty problem: when a bank becomes insolvent, whose job is it to compensate depositors for their losses? If it's the government of the place where the banks are based, what happens when that government is unable or unwilling to compensate in full, as is the case in Cyprus (and was in Iceland)?

It's very difficult to argue that the UK taxpayer is responsible for bailing out Cyprus banks and their Russian depositors; and it's equally difficult to argue that the German taxpayer is responsible.

There is a good economic reason why you gurantee small depositors.

The reason is that it is impossibly costly for small/medium sized ordinary depositors to examine the accounts and make a proper credit risk assessment of a bank like a large professional investor would. Therefore for the sake of economic efficiency small/medium sized depositors are guaranteed by Govt.

If no one trusts banks to do ordinary banking transactions then the economy would grind to a halt and everyone woudl remove their money form bansk - as indeed is likely to happen now in Cyprus. The massive loss of trust that this seizure will cause in the basic functioning of the banking system for ordinary depositors doing ordinary transactions will have huge ramifications.

The shareholders and sophisticated investors with large deposits and bond holdings in these banks should take the capital hit.

The shareholdings should be wiped out as should the lower tiers of bondholders. A bank bail in such as this is a good idea but only if you preserve the normal seniority and security of ordinary depositors and senior (ie safest) bond holders.

This Cypriot arrangment partly tips the capital structure on its head and undermines trust in banks.

@ drivinmecrazy Mon 18-Mar-13 14:21:35

Just found this on the HM Treasuries website

" This Model Agreement establishes a framework for reporting by financial institutions of certain financial account information to their respective tax authorities, followed by automatic exchange of such information under existing bilateral tax treaties or tax information exchange agreements. It addresses the legal issues that had been raised in connection with the Foreign Account Tax Compliance Act, simplifies its implementation for financial institutions and provides for reciprocal information exchange.

We now look forward to a speedy conclusion of bilateral agreements based on this Model, including by other jurisdictions.

Co-operation will continue with a view to pursuing equivalent levels of reciprocal information exchange and to achieving maximum consistency and standardisation in the technical implementation of the agreed information exchange. More detailed guidance will be forthcoming.

This is an important step forward in establishing a common approach to combat tax evasion based on automatic exchange of information.France, Germany, Italy, Spain, the United Kingdom and the United States will, in close cooperation with other partner countries, the OECD and where appropriate the EU, work towards common reporting and due diligence standards to support a move to a more global system to most effectively combat tax evasion while minimising compliance burdens."

Blimey this all getting really Orwellian now!
Of course the above only applies to little people
Is there no where to hide from these thieves??

Dunno about others but puts u off saving a bit doesn't it?

MrsJRE,

I still don't see any legal agreement between EU countries, or even within an EU country that negates and nullifies band deposit guarantees.

Indeed, that s why Cyprus is unable to grab deposits without ratification from their parliament, making it legal to do so

Piglet, MoreBeta has it right. There is a hierarchy and order of legal rights in case of a bank collapse, with shareholders, followed by junior bond-holder taking cuts. Then Sr.. Bond-holders and depositors over the ?100,000 guarantee limit take a haircut. Smaller deposits under the bank grantee limit are left intact. Always.

There have. Even a number of retail bank failures in the US over the decades and it has been handled legally and appropriately with the small depositors protected.

What should happen, in Cyprus, is that the sovereign bond holders should take a haircut. Because if the country goes bankrupt, they will suffer huge losses. These guys are savvy investors who knowingly took a risk for higher returns. Who are the holders of Cyprus sovereign bonds? Hedge funds in Mayfair and German and other banks.

'It's very difficult to argue that the UK taxpayer is responsible for bailing out Cyprus banks and their Russian depositors; and it's equally difficult to argue that the German taxpayer is responsible.'

The treaty that MrsJREwing referred to is the European Stability Mechanism and article 136

en.wikipedia.org/wiki/European_Stability_Mechanism#Ratification_of_TFEU_Article_136_amendment

It seems to be an agreed common fund that all signatories have contributed or will contribute to and its aim is to bail Eurozone countries out if they are in difficulty. So it is not really individual countries taxpayers per se, all governments have agreed and signed up to this way of dealing with bailouts.

I can't find anything aloowing bank accounts under deposit guarantees to be raided, but a BBC article on the European Stability Mechanism says

"Will there be conditions attached to financial assistance?

Yes. The economic policies will be negotiated on a case-by-case basis but they are likely to include steps to reduce the borrowing needs of the country concerned - some combination of spending cuts and tax increases.

They are also likely to include reforms intended to stimulate economic growth, such as introducing more competition into the labour market and other areas of the economy."

www.bbc.co.uk/news/business-19870747

Maybe teh case-by-case basis covers it.

Smaller deposits under the bank grantee limit are left intact. Always.

Except when the government that issues the guarantee is unable or unwilling to honour it, for example in Iceland and Cyprus.

So whose responsibility is it then?

Responsibility for the failing banks? In the case of Cyprus, it would be whoever made the decision to invest heavily in Greek bonds.

Knowing a bit about how investment decisions are made, I feel that this was a political decision.

'So whose responsibility is it then?'

The EU has suggested a 100,000 Euro deposit insurance scheme.

It is interesting that it doesn't yet appear to have been passed.
This may be a pressure trick to force its passing in countries that are wobbling for fear thatthis may happen to them if they are bailed out

'June Timetable
European leaders are working toward a June timetable to set minimum standards for individual deposit guarantee plans at the 27 member states, a key part of the proposals for a banking union that places regulatory authority in the hands of the European Central Bank

?It is very clear in the commission text that savers who are covered by deposit guarantee schemes, because they have deposited less that 100,000 euros, should be excluded from the scope of any bail-in,? said Vicky Ford, a U.K. Conservative member of the European Parliament who is working on the law.

www.businessweek.com/news/2013-03-18/cyprus-bank-levy-threatens-european-plan-for-deposit-guarantees

flatbread - now you hit teh nail on th head there.

"....German and other banks"

Lets be clear here. Making sure that German and other bansk dont take a hit on their capital is very important to Angela Merkel and is always the driving force behind every bailout negotiation in the EU. The EU banks are so fragile with the huge losses accumulating in the system the Euro technocrats are desperate to prevent banks taking losses on their bond holdings. Hence cistizens are being loaded with the burden.

My bet has always been the Euro technocrats will do anything to keep the European project and the Euro together - including raiding banks accounts and private pension funds in the end if the citizens don't do something to stop them.

This Cyprus event is just the first of many. If they do it once they will do it again. Cyprus should do what Iceland did. Refuse to bail out banks, look after its citizens and if necessary leave the Euro.

Cyprus?s depositors aren?t covered by deposit guarantee rules because the state is insolvent, German Finance Minister Wolfgang Schaeuble said today on Deutschland Radio.

?The media falsely created the impression that deposits are not safe in other countries,? Schaeuble said. ?They are safe, though only on the proviso that the states are solvent.?

www.businessweek.com/news/2013-03-18/cyprus-bank-levy-threatens-european-plan-for-deposit-guarantees

That doesn't sound very reassuring for other countries. The ESM is supposed to bail them out, but it may be that in that case they are not solvent and may possibly not be protected.

This Cyprus event is just the first of many. If they do it once they will do it again. Cyprus should do what Iceland did. Refuse to bail out banks, look after its citizens and if necessary leave the Euro.

This

Russia has just made a loan to Cyprus. It is now saying if 10% of all that Russian money in Cyprus is confiscated it will renegotiate the loan terms.

This all seems a PR disaster at the moment as much as anything else - banks still shut, not clear who will lose money and who will not, countries changing their positions, no one clear and a precedent set which damages confidence in banking.

claig - wow!

Mr Schauble might just have let a very large cat out of the bag there.

Once depositors in Euro Area banks realise their money is not safe there will be capital flight, bank runs and an unstoppable collapse unless Germany is prepared to effectively back stop the whole continent by allowing the ECB to recapitalise the entire banking system of Europe.

Printing unlimited quantities of Euros, lending them on easy terms against extremely poor quality collateral including defaulted mortages and then Germany funneling unlimited capital into the ECB to absorb the losses it will incurr on those loans is where we are heading.

The problem is the German people will not want to do that, Anglea Merkel can't admit that is what it will take and the citizens of other Euro countries will not accept the onerous terms that Germany will impose.

Mr Grillo in a speech last week told Italian people they are effectively out of the Euro already as they will be dumped just as soon as the German banks get their money back.

The German flag was torn down off the German embassy in Nicosia yesterday by protestors and everyone knows the Germans hold the whip hand on the terms of the Cypriot bailout.

The Russian dimension is adding a further complication.

so Cyprus will have to decide if it is in the Russian camp, or the European camp.

"Surely unearned income should be more fair game than that which has actually been grafted for? "

Unearned income in the form of interest and dividends is already taxed. What's happening in in Cyprus is a wealth tax.... something every Communist will be creaming their pants over....ie. redistributing assets on on an involuntary basis. Aimed at Russian millionaires who hide their money in Cypriot banks but also robbing everyone else in the process. We've already got the Lib Dems suggesting mansion tax on £2m properties. Doesn't affect most people but when the thresholds come down to £1m... £500k... £200k.... we'll have no recourse because the precedent has been set. It's not alarmist. 'Anti-rich' eventually becomes 'anti anyone with a few quid' whether it's been grafted for or not.

Flatbread, Clag found it. We should be ok as DC didn't sign, what a relief, he doesn't normally do things I am grarefull for, this time he did.

I think the tax sharing info backs up the posters story regarding the Spanish situation.

The German flag was torn down off the German embassy in Nicosia yesterday by protestors

Yes, it's awful of those terrible Germans to stump up the lions share of the money to bail out eveyone else, and to meanly expect the countries with the problem to share the pain.

Pglet - and that is why it would be better for Cyprus and other nations such as Irleand, Portugal, Spain to just default and not accept the German bailout terms.

The problem is the politicians o fthese nations still see it in their own personal interests to stay in the Euo and EU as long as possible.

This is about the established political class doing things against the interest of citizens. No wonder people like Nigel Farage and Beppe Grillo have suddenly received such support. They appear to speak for citizens and not for the established political system.

Default on what? This isn't about sovereign bonds like the crisis in Greece.

A lot of conspiracy sites are reporting a quote by an economist at Commerzbank speaking to Handelsblatt. Can't find teh quote on any UK mainstream newspaper site, but have found it on Handelsblatt

?Insofern wäre es sinnvoll, in Italien eine einmalige Vermögensteuer zu erheben?, schlug der Bankenvolkswirt vor. ?Ein Steuersatz von 15 Prozent auf Finanzvermögen würde wohl ausreichen, die italienische Staatsschuld unter die kritische Marke von 100 Prozent des Bruttoinlandsprodukts zu drücken.?

My German has lapsed and I can make out only 3/4 of it, but it is being translated in blogs as

A tax rate of 15 percent on financial assets would probably be enough to push the Italian government debt to below the critical level of 100 percent of gross domestic product"he told Handelsblatt

I am going to dig out my old German grammar books and be ahead of the curve. I speak French and Italian, but this is a different ballgame!